Growing your family without growing your debt

Having a baby is exciting for families but there's no denying it is expensive. And with the potential drop from two incomes to one this can place an even bigger strain on the family budget. That's why it's important to be financially prepared for the pitter-patter of little feet.

The first step is to at least estimate how much money you'll need. Setting up the nursery is one of the expenses you'll have to budget for. A cot, pram, change table, car seat, blankets, baby monitor etc can quickly add up to a few thousand dollars.

Of course there are ways to cut down on these costs - you don't have to buy the most expensive items in the store. Buy second-hand or borrow from friends who've recently had a baby.

You'll also need to decide whether you'll deliver the baby in a public hospital or privately. If you opt for public most of the costs will be covered, but if you use a private obstetrician expect to spend thousands - even if you have private health insurance.

And changes to the Medicare Safety Net which came into effect in January mean that there are caps on how much Medicare will pay for obstetric costs, so you won't get 80% of your out-of-pocket expenses.

Then there are ongoing expenses to consider like nappies, clothing, possibly formula, medical and pharmaceutical costs and childcare down the track.

Check out babycenter.com/babycostcalculator.htm, which can help you estimate the costs of a baby in the first year.

And these are just expenses you can expect upfront - you have to think beyond the first year. Some estimates say raising a child to age 18 can cost as much as $600,000!

It's a good idea to try to get used to living off one income in the lead-up to the due date. Reducing debts should be a priority so use the second income to minimise debts. If you have a mortgage the repayments will probably be one of your biggest regular expenses, so paying extra will get you ahead meaning you may be able to pay less while on leave.

If you think you'll have trouble keeping up with repayments, most lenders offer some sort of parental option, meaning you can reduce your repayments while on parental leave. Keep in mind this will mean you'll effectively be extending the life of the loan.

You may opt to consolidate any credit card debt or personal loans into one single loan, so you only need to worry about a single repayment. If you're lucky enough to be debt-free then save the other salary to get you off to a good head start.

You also should work out how long you or your partner will take off work to take care of the baby. This may partly come down to what you can actually afford. You may be entitled to some paid parental leave from your employer if you have worked there for long enough.

You may also ask about returning part-time if that is feasible. Unless you're lucky enough to have family to look after your offspring when you're at work, you'll need to budget for childcare costs.

The good news is you may be able to get some financial support from the federal government to help you along the way.

Examples include the Baby Bonus, Paid Parental Leave which comes into force in January 2011, Family Tax Benefits and Child Care Benefits. Take a look at page 47 of our cover story for information. You can also visit centrelink.gov.au or familyassist.gov.au.

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