For starting a family
Written by Justin Cilmi
Having a baby is one of the most exciting and scary times in your life. Getting on top of your finances can help alleviate some of the pressure, so that you can enjoy your time with your newborn.
On average, if you are an expectant mum, you will be aged 30.7 years. If you are an expectant dad, you will be aged 33.* You are roughly twice more likely to be married than not and you will likely end up with more than one child.**
The National Centre for Social and Economic Modelling (NATSEM) has calculated the cost of raising two children between the ages of 0 and 4, for middle income families to be $133 per week (or $6,916 per year). This cost rises as your children grow older. NATSEM estimates the cost for middle income earners of raising two children rises to $228 for children between the age of 10 and 14 and $678 per week for children between 18 and 24^.
Where does all the money go? The cost of raising two children for a middle income family (Tips to ensure)
The table below illustrates the cost of two children, from birth until they finish their education, in 2011-12 dollars.
|Furnishings & equipment||$50,425||6%|
|Services & operations||$18,960||2%|
|Fuel & power||$17,413||2%|
Source: National Centre for Social and Economic Modelling (NATSEM); The cost of raising children in Australia. May 2013.
Of course, these figures are illustrative and your family is bound to be different. However, there are some common financial issues you will share with the other 300,000 families expecting a baby this year and some ideas on how to manage these are outlined below.
1. Reduced income, increased expenses
Money will be tight for the first few years as you adjust to one of you not working (or working part-time) and you take on extra expenses such as nappies, baby food, childcare, toys (oh, the toys). Prepare a budget listing all your income and expenses and use this to prioritise “nice to have” items such as a bigger family car or a family holiday.
There are heaps of online calculators available to help with budgeting. Check out the ASIC Smart Money website (www.smartmoney.gov.au). If you want something more alive and regularly updated to track your spending, there a number of apps you can download (some paid, some free), which allow you to link your bank accounts into to get live updates to your budget. These are particularly good for helping you dissect your spending into categories to see how much you are spending on coffee, take away, going out – i.e. the areas you can be more brutal with if you need to cut down on costs.
Also, consider doing a cost/ benefit analysis including childcare costs and potential government benefits of one parent being a full-time carer vs both of you working full-time vs one of you working part-time. Before your family income reduces, you may wish to consider re-financing your mortgage to alleviate any cash flow stresses.
2. Save early and save consistently (Tips to ensure)
Set yourself realistic savings goals (for example a $5,000 baby nursery fund, a $10,000 education fund) or percentage of salary to save (e.g. 20% of after tax salary). Generally, the earlier you start to save, especially while you are still working, the better the financial outcome.
Also, set a budget for when you are without one income and maintain a savings goal even during that time.
3. Make the most of government assistance (Tips to ensure)
Find out as much as you can about various government benefits and entitlements such as the Newborn Supplement, Family Tax Benefit Parts A and B, Child Care Subsidy and Paid Parental leave. You may be eligible for more than one payment. A Centrelink Financial Information Service Officer can help you navigate through these or you can check out the Department of Human Services website for information.
4. Invest smart (Tips to ensure)
Parenting can have its financial advantages. Talk to your financial adviser about investing in assets in the non-working/ part-time working parent’s name and spouse super contributions to attract any tax offsets that may be available to you.
Using the lower income earner for some investments could reduce the tax you pay on investment income over the years. Additionally, there are certain investments that are tax free if invested for a minimum of 10 years, which can be a great option for long-term investing for education costs in the future.
5. Protect your family against the worst (Tips to ensure)
Set your mind at ease by reviewing your life insurance, health insurance and estate plan before the baby arrives to make sure they incorporate your life changes. Very few people want to talk about these things, however, if the worst happens, by then it will be too late to get things done.
At the very least check: (Tips to ensure)
- Confirm the life insurance cover through your super continues if/when your employer contributions cease
- determine what income protection is provided through your superannuation and whether it is enough to cover the main income earner (you will quite reliant on that in the early stages, so you want to be sure there is some cover in place.
- do not dismiss the need for personal insurance cover for a stay at home parent. They are just as valuable as the person bring home an income.
- get your Wills up-to-date to including guardians.
Bringing little ones into your family can be a tremendously fun time, but also extremely stressful. By setting yourself up in advance will help you take the financial stress out, to allow you to enjoy what matters most.
*Australian Bureau of Statistics “Births, Australia, 2012”.
**Australian Bureau of Statistics “Family Characteristics Survey 2009-10”.
^ National Centre for Social and Economic Modelling (NATSEM) “The cost of raising children in Australia” AMP. NATSEM Income and Wealth Report, May 2013. Please note this statistic refers to the average cost of raising a child for a middle income two child family at December 2012. Middle income families are defined as the middle three-fifths of all couples with children, ranked by their gross income.