How to prepare financially for starting a family
Top 10 tips to prepare financially for starting a family
Starting a family is an exciting time but it can also be an expensive one. It can also mean big changes to your lifestyle & finances. As expecting parents, it’s natural that you may have a lot of questions around family finance planning.
One of the main questions you may have when starting a family is how much does it cost to raise a child. The cost of raising a child in Australia is estimated to be at least $250,000. Furthermore, according to research, it costs an average of $144 a week to raise a child between the ages of zero & four (mind you, this is not taking into account any childcare fees).
However, don’t walk before you crawl, first you need to save for a baby.
But before you rush out & drop $1,500 on a bugaboo consider our 10-point family financial plan;
Start a Baby Fund
As soon as you make the decision to try for a baby, set up a “baby fund” or savings account. Even if your savings (nest egg, emergency fund, offset account) is on the small side, any savings you can put away now can help you deal with the new expenses that come with a newborn. With each pay, take a portion & place it in a separate savings account. Creating this “baby fund” will supply you with the money to supplement lost income & to purchase baby essentials.
As we have experienced in early 2020 with a global pandemic, our Newcastle Financial Planners recommend having 6 months of living expenses set aside to cover unexpected expenses/issues.
Budget
Before Baby: Now comes a bit of work – creating a budget. Write down your income & expenses (a bank statement can help with this). What’s left over is for saving. If there isn’t anything left over, now is also the time to decide where to cut back, while your both earning income. Another great initiative is to direct debit your savings each payday to your “baby fund” or start living off one wage immediately & bank an entire salary.
After Baby: Even working mums need some time off work. Ask your HR or payroll department to calculate your leave entitlements (both annual leave & maternity leave) and how this can be paid, as a lump sum, full wage or half wage to prolong your income.
Pregnancy/Medical Costs
Be prepared for extra medical & maternity costs, whether it’s ultrasounds, harmony test, birthing classes, blood tests, medications, obstetrician, vaccinations. If you include these in your family budget, you might potentially save you & your family from any unexpected stress down the line.
Many private health care funds also have waiting periods before you can claim on pregnancy and birth related costs, so it may be worth considering this as well when you’re planning your budget (many funds do not cover pre-birth or pregnancy expenses).
In addition, to regular costs, there are other things you may need to factor in that could affect your medical expenses. For example, regardless of whether you choose to have your baby in public or private hospital, it’s worth investigating if there are out-of-pocket costs, even with Medicare & private health insurance.
Furthermore, consider undertaking some research if you want your child to be covered under a health insurance policy, as a single or couple, you may need to be extended to a family policy.
Check your benefits (Paid Parental Leave /Dad & Partner Pay)
Contact the Department of Human Services to find out what income support you will be eligible for once the baby arrives. In most cases you will qualify for some family benefit payments. Employment related maternity leave is also managed through Centrelink. It is recommended to get all this paperwork sorted out early as there can be processing delays when working with Government departments.
Taxes
When reviewing your finances including what benefits you qualify for, refinancing your home loan, financing a new family car or reviewing your budget, it is important that your taxes are up to date. This will support you in identifying if you qualify for benefits, provide your mortgage broker with all the details required to secure the best possible rates.
Childcare
It is never too early to put your name on the waiting list for childcare.
Assess the various options in your area and investigate alternatives such as grandparents, sharing a nanny or family day care. The cost of childcare is usually the make or break factor when it comes to returning to work. Long day care can range from $70 to $175 per day.
Transport
Consider your transport needs after the baby arrives, will your current vehicles be suitable?
Is your small hatchback suitable to fit a baby-seat & pram?
In addition, how does your current vehicle rate from a safety perspective?
It is no longer about you. You will have responsibility of another little person & providing the safest environment becomes paramount to many new parents.
This may involve purchasing a new car, whether that involves refinancing your mortgage, using your offset monies or looking at car financing options.
Mortgage
If you have existing debts, like credit cards, personal loans or a home loan, you may want to consider how you can reduce these debts as much as possible before the baby arrives, particularly as you may encounter some unexpected expenses along the way.
In addition, when looking to refinance it becomes more difficult when your family drops down to one wage & has one additional “financial dependent” to budget for. ‘
On top of making regular debt repayments, there are other things to consider that could help you manage debt. Your mortgage broker will be able to support you with advice, however it may be beneficial to think about;
- your credit card situation & whether you’re really getting a good deal when you factor in the annual fees & additional benefits
- consolidating your debts into one if it means you will pay less in fees & interest charges
- if you can pay off your home loan faster or refinance to reduce the loan repayment amounts.
- higher interest rates & added fees that can also really affect what you pay back on top of the principal amount, so consider shopping around or speak to your broker to see if you can get a better deal.
Insure your Baby’s Future
Starting a family is a big responsibility & it means that you may need to put more thought & planning into what will happen to your little one if the unexpected happens.
Our Newcastle Financial Planners recommend you consider personal insurance to support your family in the event of injury, illness or death.
Many look to cover their mortgage, living expenses & child education for several years, however depending on your individual circumstances, these numbers may not be enough.
If you live in a home, whether you are renting or repaying a mortgage & you can’t rely on wealthy parents to take care of your kids if something happens to you &/or your spouse, you should consider a significant amount of insurance. Even if you are not providing a lot of income or are planning to stay at home with your baby, you should still be insured. You will have to cover any lost in income & also cover the cost of a carer for your kids (or the other parents income should they become the carer).
While life insurance is important, you may also need to insure against the possibility of an injury or illness that could keep you from working & earning an income for your family. Our Newcastle Financial Advisers recommend you consider a comprehensive insurance plan to protect your family’s future, by including Life insurance, Total Permanent Disablement, Income Protection & Trauma cover.
Will & Estate Plan
Estate planning can be a good idea if you want to protect your family’s future. Estate planning includes more than a will, it includes decisions around who looks after you & your child if you’re ever in a situation where you can’t make decisions for yourself, as well as documenting how you want your assets (which may include insurance & super) to be distributed should you pass. It is also worth considering who you would trust to take care of your child should something happen to you & your partner.
It is exciting to welcome a new addition to the family, but it can be an expensive & overwhelming time for you & your partner. Seek advice from your advisors or contact Newcastle Advisors for support.
