Starting a family is one of the biggest financial decisions you will make. Babies, planning and money are words rarely used in the same sentence so here are vital tips when considering starting a family.
1. Our way, not my way
It is likely that you and your partner will have different beliefs around money and while there is no ‘right’ or ‘wrong’ view to have of money, sitting down to discuss your individual values will put you in a much better position to make joint financial decisions. From the structure of your bank accounts and your budget, to where you want your kids to attend school, these topics need to be agreed upon. You need to be going in the same financial direction for a successful, stress-free family life.
2. Start early
Start tweaking your budget one year out (or as soon as you see blue!) to prepare for the financial changes ahead – and if you haven’t got a budget, it’s time to start! Budget using only one income and you will develop an understanding for the lifestyle adjustments you may need to make to manage the change in financial position. Also, adjusting your budget to one income will mean that the second income can be used to unlock surplus cash flow. Saving this surplus for your emergency cash fund will be a good alternative to negotiating at Cash Converters!
If you do want to send your kids to a private school or the like, start saving every month from the day your child is born. Consider using ‘education bonds‘ (also called growth bonds) that may be a tax-effective option as opposed to saving in a normal bank account.
3. Review your investments
If you have investment properties or other investments, spend some time to rethink the purpose of them. When do you want your money back? Why are you investing? These questions will help you to make a call if it may be smarter to sell any assets if it will help you to better manage through the coming changes.
4. Families need a home, not necessarily a mortgage
For the majority of us, it takes two incomes to get the mortgage approved which can be an issue when one income is affected starting a family. Consider these questions together:
- Is having a parent at home important to us and for how long? Is it more important than owning a home in the short-term?
- Can we easily maintain our mortgage with the changes in income or are we going backwards fast? Should we consider selling?
- If you do not have a mortgage, should you rent for a few more years?
Patience in our financial lives is a smart move. Saving a larger deposit while renting in an area you would like to buy in may be better for you in the short-term. You will have time to learn about your changing financial position and develop a better understanding of the property market you will be buying into. Don’t let the ‘fear’ of a rising market or temptation of a cheaper market convince you to buy property when you are not ready for it.
5. Protecting your ‘human capital’
When it comes to financial risk a single income family is pretty much as risky as it gets. Make sure that your lifestyle can be maintained for your family if your health affected your ability to work (your human capital). Income protection, Trauma, Total & Permanent Disability and Life cover are terms that you should understand when looking at your ‘plan B’ strategy for your family.
If you value the benefits of private health, make sure the correct level of cover is in place at least 12 months prior to becoming pregnant to ensure you are covered for pregnancy costs (such as obstetrics).
6. You are telling me that will happen if we passed away?
If you and your partner passed away yesterday, who would you want to bring up your kids and when would you want them to have access to your assets? Depending on your situation, this question can have a simple or complex answer. Talk to a solicitor who can help you get the outcomes you would prefer for your children and your wealth. Dying intestate (without a Will) will cost your Estate but most importantly leave question marks around who will be the most appropriate person to look after your children. Would you want the Public Trustee or Child Safety Office making this decision?
7. Changes to maternity leave and paid parental leave
Based on last year’s federal budget, there will be changes to benefits you may receive when you have a child. In short based on your workplace agreement, you may receive the higher of either your maternity leave or the government parental leave benefit (PPL). You will no longer be eligible for both payments from July 2016.
*For further details on the PPL click here
Planning early on can save a lot of stress later down the track. A couple that is mentally and financially prepared will be better equipped to deal with the financial pressures and lifestyle adjustments that a growing brood produces.
For more information on some of the concepts in this article, please get in touch with us. Planning is vital for financial success.
Dean Van Zyl – [Personal economy consultant]
This article does not take account of your personal circumstances. Before relying on it to make a decision, you should consider how it applies to your circumstances or talk to us about our process for personal advice.