'Don't buy a new car': 6 steps a financial adviser wants you to follow before having a baby.

Babies: There is nothing quite like the deadline of a new arrival to kick you into a panicked frenzy to get your financial world sorted. 

So, where do you start? How do you make sure you have got all financial angles covered? Especially during our current cost-of-living crisis.

As a licensed financial adviser with over 16 years in the industry, here are my top six tips to get you started before you have your baby:

1. Understand your leave entitlements.

It's important to get your head around what paid and unpaid parental entitlements exist for both parents (assuming there are two of you on this journey). 

Watch: Parenting 101 for new mums. Post continues below.

Will you be relying on the government's paid parental leave entitlements? These will change from July 1, 2023 increasing from 90 days (18 weeks) to 100 days (20 weeks) and the leave can be used within two years of the child’s birth or adoption.

They have also introduced a combined family income limit of $350,000 where the individual income test isn’t met. The current parental leave pay is $162.49 a day before tax. Once you have figured out your income, you should know how much of an ‘income gap’ you are likely to have. 

2. Examine your cash flow.

Now you know your ‘income gap’, look at your current costs. What does it cost to run your life now, without a baby? Did you find costs that can immediately be cut, or subscriptions that you aren't getting value from that can be cancelled to help supercharge your savings?

Call your providers and ask for better deals on everything, you will probably be shocked at how much you can save with a simple phone call. Consider prioritising paying down any bad debt that has high-interest rates, whilst you have more income and fewer expenses. 

Now, what additional costs do you need to build in for the baby’s ongoing needs? Earlier this year Canstar looked at the price for having a baby (without factoring in childcare costs) and it ranged from the lower end of $4,310 in the first year up to $9,620 at the high end. 

Once you know that, you should be able to see if you can cover it completely, or if there is a ‘cash flow gap’ that you will need to bank cash for ahead of time. This should (ideally) be on top of having a few months' worth of expenses in an account for any emergencies that may pop up. 

3. Question if you really need to buy and upgrade things.

When you have a baby, it's very common for parents-to-be to consider household upgrades, baby gadgets and costly additions. But when you’re likely to have less income and more expenses – this is the time to really rein it in, not build extra overheads into the budget. 

I have seen people buy new cars, bigger houses and fancy baby clothes and more often than not, the unwanted side effect is more stress.

Let me ask you, do you remember the car your parents had when you first came home? Your first bedroom? Clothes? No. Me neither. 

Spending less and being strategic (borrowing, swapping or renting stuff) can often mean you have less financial pressure and therefore the ability to have more time with the baby if that’s what you want. 

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3. Get your life admin sorted.

There can be a lot of life admin to sort, and here are the financial examples I often see forgotten about. If you have private health cover, make sure (ideally pre-pregnancy) to know if you are covered for everything you want, or if you need to upgrade it. Often there are wait periods. You will also likely have a gap if you go private, so get those estimates (in writing) ahead of time. 

Do you have your insurance sorted? Many people consider things like life insurance and income protection needs when they have a dependant. You may also need to think about if you already have some in your superannuation, and if it’s enough. 

The 2019 'Protecting your Super' changes mean if you haven't contributed for 16 months, you may automatically lose your insurance. It's important to check this out, especially if you plan on taking an extended period off work. 

Make sure your superannuation is all up to date, consider if you should consolidate accounts (check your insurance first), and make sure you discuss having super contributions split from any working parent's balance to the parent who isn't getting any contributions added. Women retire with a huge amount less than men, and we live longer, so don’t miss this step. 

Make sure you have the correct beneficiaries on your insurance and super, plus an up-to-date 'Estate Plan' (such as wills and power of attorney).

4. Consider investing.

If cash is tight, this may not be an option yet. But investing for little loved ones is a wonderful way to have fewer toys go into landfill, money stashed for school fees or funds you can gift to them when they are old enough to do something meaningful with it.

If cash is tight, why not ask family and friends to contribute money to invest instead of buying gifts for a baby shower or birthdays?

5. Stay connected.

The 'take-home income to childcare cost' debate is one I see regularly. This mostly only looks at how cost beneficial it is for women to stay at home, rather than go back to work. But this thinking is often short-sighted. Clients often forget to include super, promotion opportunities and the future income impacts of staying out of work for a long period. 

If you want to stay home, that’s up to you of course, but if costs are the only deciding factor – make sure you think 'big picture'.

If you can, try to stay up to date with what’s happening in your industry, organisation and team whilst on leave (no doubt easier said than done!). 

With women on average, earning less than half of their pre-baby salary in the first few years of a baby’s life, there are significant long-term financial implications. 

This may mean your partner needs to step up and do more domestic and child-related activities, which we know largely falls onto the already full laps of women. 

Having a conversation ahead of the birth about this, rather than when you are feeling sleep-deprived you end up exploding in a desperate request for help, will make sure you both go into it aligned and ready! 

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A post shared by Jess Brady (@jessbrady_financialadvice)

Jessica is a licensed and qualified Financial Adviser and you can learn more about her via her website.

All information here is general advice only.

Feature Image: Supplied/ Canva.