Starting a family is a major life event, and one many of us plan for in advance; thinking about everything from baby names to where and how we would like to raise our children. There are many big life decisions to make, and often, finances can be forgotten in the excitement. But the reality is, a financial plan is critical to reach your family goals.
Here are our top tips to help you prepare financially.
Set financial expectations
Raising a child costs an estimated $297,500. That money must come from somewhere and it’s a good idea to establish where, from the outset. Discuss the sacrifices you are willing to make and ensure you are on the same page about the lifestyle you will lead after your child is born. Will one parent have parental leave? If so, how will your lifestyle change with the loss of income? When and how will they return to work? What impact will that have financially in the near and long-term?
Know your entitlements
Some workplaces offer paid parental leave, so it’s critical to understand what your employer offers. If one partner’s employer has more favourable terms, how can you make the most of this? You may also consider other factors. For example, if one partner is close to long service leave, does it make sense for the other partner to take time off until this is due?
Then, there are your Centrelink entitlements. As it stands, the Australian Government offers eligible parents 18 weeks parental leave at the minimum wage. There are a few requirements, particularly for self-employed, casual, or temp employees, so it can pay to know these well in advance. There are also other payments you may be eligible for, once your child is born; from family tax benefits to childcare rebates and these can make a big difference to your outgoings.
Establish your support network
Your informal network can be a great support – not just emotionally, but financially too. For example, if grandparents are close by, are they willing to provide some care for your child when you return to work? This could save you thousands in childcare costs.
Review your financial plans and goals
When it comes to our children, we all want to give them the best – but unfortunately this can come with a hefty price tag. Education, for example, can cost up to $500,000 for a top private school or around $66,000 in the public system. Understanding what you would like for your child in the long-term will help you set yourself on the right financial course today, potentially saving considerable sacrifice later.
Look at your budget to see where you can start making some changes. If you are not sure where to start, you can review our tips for saving here.
Do some debt planning
Having a child can affect your borrowing power, as lenders now take this significant additional life expense into account. Debt planning, whereby you think about the access to credit you might need in the future, can help you to set yourself up while you are still able to access the funds.
Protect your future family
Around 96% of Australians are underinsured when it comes to income and life protection. While this can seem like an extra cost you just don’t need, you need to make sure you can still provide for your child if you have an accident, injury or illness that prevents you from working. As unpleasant as it is to consider, you also need to think about what would happen if you passed away – your family don’t need a financial burden on top of the emotional one.
Additionally, if a parent is going to take parental leave, and potentially return part-time, it’s important to get income cover now – at their full-time salary, as this amount of cover will stay with you, even when they are no longer working.
Focus on the big picture
It’s easy to get caught up in the excitement of a new baby and spend up big, but it’s important to remember that there is a much bigger picture – you have at least 18 years to support them and their growing (and expensive!) needs, so is every high-end baby gadget really necessary?
Working with a financial planner can really help you to see this bigger picture and keep you on track to reach your goals. A good financial planner will take the time to understand you and set you on the best course to give your child the lifestyle you want them to have – now and into the future.
General Advice warning
The information provided in this blog does not constitute ﬁnancial product advice. The information is of a general nature only and does not take into account your individual objectives, ﬁnancial situation or needs. It should not be used, relied upon, or treated as a substitute for speciﬁc professional advice. Apt Wealth Partners (AFSL 436121 ABN 49 159 583 847) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.