Financial Planning for First-Time Parents

Bringing a child into the world is a life-changing experience. It’s filled with excitement, love, and, of course, new financial responsibilities. Raising a child in Australia comes with significant costs, from daily essentials like nappies and childcare to long-term expenses such as education and housing.

Financial security doesn’t just happen—it requires careful planning. For first-time parents, balancing short-term expenses with long-term goals, like retirement and education, is essential. With the right strategies in place, you can provide a secure future for your child while protecting your financial well-being.

Let’s Get Straight to the Point

If you don’t have time to read the whole article, here’s what you need to know:

• Get insurance: Life and disability insurance protects your family if something unexpected happens.
• Build an emergency fund: Aim for 3–6 months’ worth of essential expenses to prepare for job loss or emergencies.
• Use tax benefits: Take advantage of government incentives like the Family Tax Benefit and Child Care Subsidy.
• Start saving for education: A 529 plan or investment account can help manage rising education costs.
• Prioritise retirement savings: Your future financial security is more important than paying for your child’s university upfront.
• Update estate planning: Ensure your will, beneficiaries, and legal documents reflect your new family structure.

1. Secure the Right Insurance

Why Insurance Matters for Parents

Life is unpredictable, and securing the right insurance can ensure your family is financially supported in difficult times. The right coverage gives you peace of mind, knowing that your partner and children will be cared for even if the worst happens.

Life Insurance

A life insurance policy provides financial stability for your family if something happens to you. It can cover:

• Outstanding debts like a mortgage or car loan.
• Day-to-day living expenses to ensure your family’s financial security.
• Future expenses such as education, weddings, and major milestones.

There are two primary types of life insurance:

• Term life insurance: Covers a set period, such as 20 or 30 years. It is usually more affordable.
• Whole life insurance: Provides lifetime coverage with an investment component but is more expensive.

Disability Insurance

Disability insurance is just as important as life insurance. If you cannot work due to injury or illness, it can help cover your expenses. Consider:

• Employer-provided disability insurance – Check your workplace benefits to see if you have coverage.
• Personal disability insurance – This offers more flexibility and can be tailored to your income and lifestyle.

2. Build an Emergency Fund

Why an Emergency Fund is Essential

Life with a child is full of surprises, and unexpected expenses can arise anytime. Whether it’s medical bills, urgent home repairs, car breakdowns, or job loss, having a financial cushion ensures you’re prepared without needing credit cards or loans.

An emergency fund reduces financial stress, giving you peace of mind that your family can manage unforeseen costs without disrupting your long-term savings or lifestyle.

How Much to Save

The ideal emergency fund depends on your household income and expenses. Financial experts recommend:

• Three to six months’ worth of essential expenses for dual-income families.
• At least six months’ worth for single-income households or those with irregular earnings (e.g., self-employed parents).

If saving this much seems overwhelming, start small. Setting aside $50–$100 weekly can quickly build a financial buffer.

Where to Keep Your Savings

Your emergency fund should be:

• Accessible – Store it in a high-interest savings account for quick withdrawals when needed.
• Separate – Avoid keeping it in your everyday account to prevent unnecessary spending.
• Earning interest – If you don’t need immediate access, consider a term deposit or offset account to grow your savings.

An emergency fund protects your financial stability, ensuring your family can handle life’s surprises without derailing your long-term financial goals.

3. Maximise Tax Benefits

Government Support for Families

Raising a child has significant costs, but the Australian government offers several tax incentives and benefits to help ease the financial burden on parents. 

These programs can reduce household expenses and improve cash flow, making managing childcare, education, and daily living costs easier.

Key Family Tax Benefits

• Family Tax Benefit (FTB A & B) – Helps raise children. The amount depends on household income, the number of children, and their age.
• Paid Parental Leave (PPL) – Provides up to 20 weeks of financial support for working parents who take time off after having a baby. This allows parents to focus on their newborn without immediate financial pressure.
• Child Care Subsidy (CCS) – Reduces the cost of childcare based on family income, work or study commitments, and hours of care needed.

Updated Child Care Subsidy (CCS) for 2025

From January 2025, the Australian government has increased the CCS rate for families earning under $120,000, covering up to 90% of childcare costs.

• Families earning up to $350,000 are still eligible for reduced support on a sliding scale.
• The subsidy covers approved childcare services, such as daycare, family daycare, outside-school hours care, and occasional care.
• Payments are made directly to childcare providers, lowering out-of-pocket costs for parents.

How to Apply for Family Benefits

Parents can check their eligibility and apply for benefits through Services Australia. Applications typically require:

• Proof of income (via tax returns or Centrelink records).
• Details about work, study, or other activities (for CCS eligibility).
• Child’s birth certificate or Medicare number (for FTB and PPL).

By taking full advantage of these benefits, families can reduce childcare costs, receive tax breaks, and gain financial support during the early years of parenting.

5. Prioritise Retirement Savings

Why Retirement Savings Come First

It’s natural to want to prioritise your child’s education and future, but your financial security should come first. 

Unlike university, where your child can access scholarships, grants, and student loans, there are no loans for retirement. If you don’t save enough, you may have to rely solely on the Age Pension, which may not provide the lifestyle you want in later years.

By focusing on retirement savings early, you ensure financial independence and reduce the risk of becoming a burden on your children in the future.

How Much to Contribute?

To build a comfortable retirement, aim to save 10–15% of your pre-tax income in superannuation. If possible, boost your savings by:

• Salary sacrificing extra contributions to super (pre-tax contributions lower your taxable income).
• Making voluntary contributions if self-employed to take advantage of tax benefits.
• Reviewing your super fund's fees and investment options to ensure you’re maximising growth.

Government Co-Contribution Scheme

If you earn under $58,445, the government will match 50 cents for every $1 you contribute, up to $500 per year. This is a great way to boost your super balance with free money.

For couples, consider spouse contributions—if one partner earns less than $37,000, the higher-earning partner may receive a tax offset by contributing to their super.

The earlier you prioritise retirement savings, the more time your superannuation has to grow through compound interest, setting you up for a financially secure future while supporting your family.

6. Update Your Estate Plan

Why Estate Planning is Essential

Estate planning ensures your child is cared for if something happens to you. Without a will, the government decides how your assets are distributed, which may not align with your wishes. Proper planning allows you to appoint a guardian, manage assets, and prevent legal disputes.

Essential Documents

• Will – Names a guardian for your child and outlines how your assets will be distributed.
• Power of Attorney – Assigns someone to manage your legal and financial affairs if you become incapacitated.
• Superannuation Beneficiaries – Super does not pass through your will, so update your beneficiary nominations with your super fund.

Should You Set Up a Trust?

A testamentary trust can protect your child’s inheritance by controlling when and how assets are accessed. It can also provide tax benefits and protect assets from legal claims. If your child is young or you have complex finances, consult an estate planning lawyer to see if a trust suits your situation.

Conclusion

Financial planning as a new parent can feel overwhelming, but taking small, consistent steps can build a secure financial future for your family.

Actionable steps to take today:

• Review your insurance policies to ensure adequate coverage.
• Set up an emergency fund with at least 3–6 months’ expenses.
• Check your eligibility for government benefits and tax offsets.
• Open a savings or investment account for your child’s future education.
• Increase your superannuation contributions for long-term security.
• Update your estate planning documents to protect your family.

By making these financial moves now, you’ll be in a strong position to give your child the best possible start in life while ensuring your financial stability.