Often the first thing that comes to mind when thinking about starting a family are the softer pleasantries of having a baby and the joy that comes with a new family member. Having a baby is an exciting stage of your lives but can also be an anxious time for those ill prepared. One large aspect of getting ready for a baby will involve looking at your financial position.
So, when is the right time to start sorting through your finances?
Before you even decide to have a baby
Many people put this important aspect of their future lives to the side, but it can pay to plan well ahead of your due date and even before finding out you’re expecting.
When you’re expecting
Sometimes however, life does throws little surprises at you. It’s never too late to get financially organised if you have already received the good news.
Below are some great key areas you can focus on as your first financial steps into planning for a newborn:
Start saving a cash buffer
One or both parents will need to look after the baby in the early stages of life which will reduce your family’s ability to work. Losing an income can be a sudden financial shock to the system and combined with other unexpected day-to-day financial issues that could arise (e.g., car breakdowns, a higher-than-expected electricity bill) you might find yourself short on funds.
Having an emergency cash buffer can help mitigate the stress and shortcomings you may otherwise have. By putting a portion of your income into a separate bank account each pay day, you can build a safety net for your young family and help fund any unexpected costs along the way. This will also help you to avoid the use of credit as an alternative, that will put you further in debt.
Start with a small amount more importantly, make it a regular habit each time you get paid. As a general guide, 10% of your income per pay cycle is a good place to start.
Know what your new income situation looks like
“Will I or my partner take time away from work to look after the baby?”
“How much maternity/paternity leave am I entitled to take and will I receive any income?”
- These are both important questions that you will need to consider upfront so you can lead a comfortable lifestyle in those important first months and even years of your newborn’s life.
- Employees who have worked for their employer for at least 12 months are entitled to take up to 12 months of unpaid parental leave. They can also request up to an additional 12 months of leave. For some, it may be that their employer will pay them a regular income for a period but for others this is not always the case. It is therefore crucial that each parent-to-be speaks to their employer before making any decisions so you can maximise payment periods between the two.
- Government entitlements and paid leave in Australia is available to Australian citizens and permanent residents. There are differing forms of benefits available, so it is important that you check your eligibility for any of the following:
- Paid Parental Leave: Maximum of 18 weeks paid at $772.55* per week (before tax)
- Dad and Partner Pay: Maximum of 2 weeks paid at $772.55* per week (before tax)
- Family Tax Benefit (FTB): Two separate payments to assist with the cost of raising kids.
- Childcare subsidy: To subsidise the cost of childcare
- Parenting Payment: If you are caring for your child and are under certain income and asset test limits.
- Other payments you may be entitled to: Rent Assistance, Telephone Allowance, Health Care Card, Child Dental Benefits and the Energy Supplement.
* – Payment amount at time of writing. Please confirm this amount and your eligibility with Centrelink.
You are able to submit a claim for some of the above payments 3 months before your due date. Visit your Centrelink online account via myGov when you’re ready to apply.
The costs involved
The cost of having a baby will be different for everyone and depends on your own beliefs and preferences.
1. Going Public
Australia is fortunate to enough to have a really high standard of healthcare. As such, having a baby in a public hospital is a great option and will also reduce the financial outlay given most primary needs are covered by Medicare.
2. Going Private
If you decide to use a private hospital, all services will be at your expense. You may choose to take out a private health insurance policy to assist with covering the associated costs during birth. However, it is important to note that any such policy is usually subject to a 12-month waiting period before you will be eligible for cover, so you must plan well in advance. Going private will generally provide you with a greater deal of choices when it comes to your hospital, doctor and even room. So, if this is something important to you it may pay to go private.
3. Other initial costs
There are a number of other costs which will arise along the journey including but not limited to items such as baby and maternity clothing, nappies, furniture, bottles and formula and other big-ticket items such as a pram and car seat. Baby gear is a big business and retailers often make the most of new parents-to-be who are unsure of what is needed versus a luxury. Some great ways to minimise your costs in this area include:
- Talk to other parents and find out what items are neccessary and what you can go without
- Borrow items or buy secondhand from these same parents. You can find an endless supply of secondhand baby gear via online marketplaces – a lot of gear is only used for a short period of time before they are outgrown so you will find plenty of near new items.
- Sell your own baby gear once no longer needed. This will free up much needed financial space for new items to keep up with your growing child.
Insurance – protection for your family
There are various types of life insurances available to help you mitigate the risk of something happening to you or your partner. With a baby in tow, it is important to ensure that your partner is not only left with enough funds to live off but also to provide your newborn with a great quality of life. Additional funding considerations relating to your baby include but are not limited to provisions for:
- Daycare or a professional caregiver to assist, so the surviving spouse can go back to work when required.
- A lumpsum to cover for a period of no income so the baby can be looked after without the need to work.
- The release of any large debts you may have which could affect your spouse’s ability to fund a quality lifestyle on their own (such as a home loan).
- Future education funding.
A pre-baby budget
Now that you have a pretty good idea of what your income and costs could look like, you should look to create a baby budget:
- Record where your money goes for a month and categorise each item into either essential or luxury. Don’t forget to include essential costs which you usually pay yearly such as car insurance and apportion to a monthly amount (divide by 12 in this case).
- Add in any additional baby costs and offset your total costs against your planned monthly income.
- If there is a shortfall between your income and costs, is there a luxury item you could give up providing for more financial comfort?
There are numerous great online tools which you can use to help – we encourage you to reach out should you need assistance in this area.
Ongoing support
Sorting through the above can be daunting for some, especially if organising your finances in the past was never your strong point. Seeing a professional who can guide you through this process and alleviate you of this responsibility will enable you to make clear and confident decisions when it comes to your new family.
Some relevant areas which a financial adviser will be able to guide you through include:
- Setting up a regular investment for the long-term benefit of your child and to cover education costs.
- Ensuring you have adequate Wills and a nominated Guardian in place for your child or children.
- Considerations around you and your partner’s superannuation given a prolonged absence from the workplace may occur and how any attached insurances can be used to protect your family.
Planning for the future
This is just one step of your financial life journey, so it can pay to establish a long-standing relationship with someone you can trust throughout your lives.
Most importantly look after yourself, your partner and enjoy the ride!
Sean Hocking works with individuals and their families to provide peace of mind and clarity around their financial future. Having a roadmap in place which clearly articulates what’s important in the years to follow gives his clients the confidence to make clear and informed decisions throughout their financial life journey.
