Taralee - we too had similar concerns when we were TTC (esp. my DH...urgh, he was annoying!!).
I won't lie... since having Gabby, we have taken a back-step financially. I probably could have gone back to work earlier (I'm only going back one day a week starting this month) but I honestly don't think I would have been emotionally ready before now.
I guess the way I looked at it was that I wanted to have children while I was still young (obviously a very personal choice). Yeah, it's nice to have financial stability etc. etc. BUT, to get there, does it mean you have to put off having children when you really desire to have them??
I'm all for people waiting until they are in a steady financial position (like, you wouldn't want to go and have a baby if your other half was unemployed or not getting regular work).
I think it's possible to make some sacrifices and get through the first few years of having kids. As they get older, it is much easier to get back into work and start building your finances up once again.

That's just my opinion anyway. I'm sure it differs from others.
I grew up living in rental properties with my Mum on a sole-parent pension so we had next to nothing. To me, the fact that we have a mortgage and my DH is earning a good 3 times the amount my Mum received when we were children is enough. Anything on top of that is a bonus. I guess that's why I don't see that missing a few years of savings and luxuries is such a big deal when the reward of having a baby far outweighs having all the mod-cons.

I hope that makes sense and I haven't offended anyone. Like I said, it's my own rationale for having a baby before we were "financially ready".

Edited to say: one thing we did do was go to a mortgage broker to refinance our home loan and that has helped a lot. I think our new home loan is similar to what the others have been talking about. All our income goes on to our home loan. We use a credit card to pay for everything and, once a month, our home loan pays off the balance (this way the money is sitting on our home loan for as long as possible). So far it's working well. We haven't paid much off because of Christmas but I can see how it's going to benefit us in the long-run.

Oh... and we've just started Gabby in Childcare for 1 day a week (Wednesdays). Normally it costs $60 a day but, with the childcare benefit, I think I will only have to pay $10-20 a day which I think is quite fair. I receive about $180 a fortnight for family payments which helps too. I also do a little bit of cash in hand work :-$ and I make sure that gets paid into our bank account so it helps the interest on our home loan. There's lots of little things you can do without having to go back to work full time.