Planning for a baby is an emotional milestone many young couples dream of. Most know what to expect when we embark on this life-changing journey – happiness, fulfilment, sleepless nights and crying babies. But little, if anything, is said about the considerable impact on a family’s finances and the challenges of transitioning from two incomes to one.
At a time when your expenses are set to skyrocket, you may also be adjusting to a single income. With a little planning, though, you can make the transition painless and easy.
“As soon as you know you’re having a baby, you should start preparing financially while you still have two incomes,” said financial advisor Deborah Kent, owner of Integra Financial Services.
The best thing a couple can do to cope with dropping from two incomes to one, she said, is to pay off debt to ease demands on finances once baby arrives. “You can pay off credit card debt, or if you have too many credit cards you can consolidate the debt into one, or transfer your balance to a credit card that might offer an interest-free period to pay it off faster.”
Another tip is to make extra mortgage repayments while you can, she said, as it will allow you to use the redraw facility down the track if you need to.
“If things get difficult, you can talk to your lender and use the redraw to make a few payments,” she said. “Or you could talk to them about making interest-only payments for a while.”
Take this time to give your home loan a health check by comparing your mortgage against the market using a free site such as RateCity and if you’re lender isn’t offering a competitive rate consider refinancing to a comparable loan. RateCity’s home loan calculator shows that by switching a $400,000 loan from a rate of 5.5 percent to 5 percent could free up $70 per month and save you $44,592 over 30 years (assuming a steady interest rate).
Set a budget
Trial a budget that depends on one income, not what you’re used to, making cuts wherever possible.
“Changing the way you do things can help you manage better when you go from two incomes to one,” said Kent. “Instead of going out to dinner with friends, invite them over and ask everyone to bring a plate. Or you can have family outings over breakfast instead of dinner – it works out cheaper.”
Other expenses that you could consider cutting include subscription television, gym membership or an expensive take-away coffee habit.
Be a smart shopper
Cut back on grocery bills by buying in bulk or at discount supermarkets such as Aldi and Costco, which can save you a significant amount of money. You’ll also need to shop less often, which will save you time, too.
“If you shop every week there is a temptation to buy things you don’t need,” said Kent. “Instead, consider doing bulk shopping once a month and buying perishables when you need them.”