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Wednesday, February 10, 2010

How to Save for a Baby (Guest Post)

*Todays post is not written by me but by a special guest writer, Fred. He is providing us with his ideas on how to prepare for a new baby.*

Saving for a New Baby
You may do all the preparation in the world for the arrival of a new baby, but when the big day arrives there are still going to be things you have to learn on the go. However, one of the things which can be easier to plan and manage with the arrival of a new baby is the money, if you take the time to be organised, make budgets and stick to your plans.

Why You Need to Plan to Save for Your New Baby

The expenses for a new baby will begin long before the baby is born and will continue right up until they start college or move out of home. That is why you need to be prepared with a realistic idea of how much a new baby will cost, and how you are going to pay all these costs.

Costs of a new baby:
  • Health insurance for you and the baby. Having health insurance when you are planning a family will give you pace of mind and will help cover the costs of a lot of expenses associated with a new baby, and with raising a child. However, some health insurance policies will only cover mother and baby expenses if you have been with the health fund for a certain period before you got pregnant and this period can be as much as a year. Therefore, you need to make sure you can afford your health insurance premiums now, during pregnancy and throughout your child’s life.
  • Reduced income. Whether you or your partner plan to return to work after the baby is born, there is still going to be a period of time where one of you will have to stop working to look after the baby until it is old enough to go to childcare. Then if you do plan to be a stay at home parent, you need to know whether you can afford this option, or whether you would earn enough returning to work to cover childcare expenses and the normal family bills.
  • Baby needs. In preparation for your new born you will need new furniture for their room, clothes, toys, prams, car seats, baby baths, bottles, not to mention all of the disposable items like baby powder, milk, nappies, and the list goes on. As your child grows you will need to spend a bit of money baby proofing your home to buy safety covers for your power points and baby gates for your stairwells. Then of course as the child grows you will still need to clothe him or her, send them to school then to university, college or help them get started in their own place.
How to Save for a New Baby

Saving for a new baby can be much like saving for any other goal in your life, and a great place to start is with a high interest savings account, and regular deposits. However, it can help to know whether you are entitled to any extra payments from your employer to boost those savings, and to find out how to make the savings you do make, go further.

Ways to save for a new baby:
  • Know how much you need. This is where you can start deciding how you intend to live after you have your baby. Whether one parent decides to stay home with the baby, or whether both parents will return to work will affect the amount of money you need to save before the baby arrives. If one parent plans to stay home with the baby, start living off of one income as soon as possible – this will help you get an idea of whether you can afford to live on one income, plus by spending just one income, you can transfer all of the second income to your high interest savings account. Also find out whether you will be entitled to any parental or maternity leave and whether this leave is paid; you may also be able to have your long service leave paid out as a wage while you stay at home looking after the baby and this regular income will mean you need to draw less on your savings.
  • Make a budget. Once you have made some of the decisions from the point above, you can start to make a post-baby budget to see just how much you will need to draw on your savings to supplement the family income. This means you need to include all of your regular expenses, plus ongoing baby expenses like nappies, doctor’s appointments and clothing. To help with this budget consult someone you know who is already a parent for their advice on expenses, or read up on a baby book to help with baby budgeting. Making a pre-baby budget, or reviewing your current budget can also help you see where you can cut back on your spending to direct even more funds to your high interest savings account.
  • Make a list of the things you need to buy. If you know exactly what you need – finding this out from friends and family members with babies – you’ll be able to save money when you do your baby shopping and you won’t feel pressured by the staff at the baby stores who will want to convince you that you need every single product that they stock. As well as not spending money on things you don’t need you can also use your list as a baby registry so the gifts you get for your baby shower will fill out your list, and when the baby arrives you may only need to dip into your savings account for a few items.
  • Start your savings plan. Transferring just a little money each week to a high interest savings account when you start planning for a baby will give you a head start on your baby expenses. If you make the transfer automatic each pay day you won’t even notice the money being moved, and if you plan to life off of one income and transfer your entire wage each week you will soon see impressive increases in your interest earning too. Making regular deposits to a savings account also gets you into a good habit to be able to save for your baby’s future too, to cover expenses such as their education which can really add up down the track if you’re not prepared.
  • Transfer your savings to a term deposit. Building up your savings account balance is great, but you can get even better returns on your baby savings by transferring your balance to a term deposit. Term deposit accounts offer the best interest rates and returns on larger investments, secured for the longest term, so transfer some or all of your savings account balance to a term deposit when it is large enough and watch it grow even more.
Raising a child can be hard work, but saving for their arrival doesn’t have to be. Just take a little time to make some financial preparations and think about the way you plan to live after your baby arrives and you will be able to find a savings plan and strategy which suits you, and covers all your baby expenses.

Fred writes for Credit Card Finder, where he helps people compare and choose the best no annual fee credit card.

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