Here are five key considerations from Westpac Senior Financial Planner Diana Saad, to relieve some of the pressure - so you can concentrate on your new bundle of joy.
For many, having children means a reduced household income and increased expenses, which leads to a cashflow squeeze. To prepare for changed circumstances you need to clearly map out your expected cashflow. You can divide that up into a few basic steps:
The simple act of adding up your monthly income and expenses so you know where you stand financially can give you more certainty, which reduces anxiety. It can also help you prioritise spending to the areas that provide the greatest benefit. “A good idea is to group your fixed expenses like your home loan and utilities as these are your monthly non negotiables,” Diana says. “Then you can make smart decisions around which areas of discretionary spending you value the most.”
“Yes, the costs are significant,” Diana says, “and you will have to think about how to alter your finances in line with these additional expenses. It could be making sure you cut down on impulse purchases and wasted food. It might be going for a job with a higher income, and taking advantage of government benefits (like the Child Care Rebate). You can also explore the free resources available to you, like recreation at the beach or the park. You might look at an investment plan, to generate income over the long-term to meet some of these expenses.”
At this stage, you might also consider whether you'll need a bigger car or house; or whether you might want to move to a more child-friendly area.
Should one parent stay at home? Or can the income benefit of continuing to work outweigh the child care costs? “You also need to consider the loss of government benefits,” Diana says. “For example, the Family Tax Benefit Part A & B and the Child Care Rebate may be lost due to the additional income earned from the second spouse working.” Your financial adviser can help you model some projections for both options; and even do a cost-benefit analysis.
At this point you might consider moving at least part of your mortgage to the certainty of fixed interest rates, if you wish to be more certain of your mortgage payments. You might also consider refinancing to improve cashflow. Again, you might seek the advice of a financial expert to help tally the costs and benefits of each option.
When you're preparing for your first child, it's wise to put as much money aside as you can, to help with the added expenses. Setting goals for savings helps. You might set a $5,000 target for your baby nursery fund, $10,000 for an education fund, or you might put aside a percentage of your net income (say 20%). Any lump sums you receive at this time can be set aside as well.
Make sure you understand the rules around the entitlements awarded by the various government schemes, and how they can affect your cashflow. Benefits change from time to time but may include:
Parenting can have its financial advantages. Factor these into your budget.
It might be time to review your life insurance and health insurance and ensure you have an appropriate estate plan in place before the baby arrives. A good estate plan can ensure that your assets will go to the right people at the right time and in the right manner, after your death. At the very least check that any life insurance cover you have through your super continues when your employer contributions stop and that you have a valid will (including guardians) in place.
Becoming a parent can be nerve-wracking, with a lot of decisions to make, but it's also a precious time. Give yourself the space to enjoy it by setting a plan of action broken into manageable steps that you can implement. Your financial adviser can help you break it down.
This information is current as at 28/06/2017.
This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This document provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Westpac Financial Planners are representatives of Westpac Banking Corporation ABN 33 007 457 141 AFSL & Australian Credit Licence 233714. The tax position described is a general statement and is for guidance only. It has not been prepared by a registered tax agent. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. Any tax position described is general and incidental to the financial advice. It has not been prepared by a registered tax agent. Please consult a registered tax agent for specific tax advice about your individual situation.
These projections are predictive. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections.
Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis. There will be tax consequences if you breach these caps. For more detail, speak with a financial adviser or visit the ATO website.