Planning for a new addition to your family is one of the most exciting times in your life.
While nothing can prepare you for all the challenges and changes, you can start to plan your finances. Here are 3 key tips for relieving some pressure so you can concentrate on your little bundle of joy.
For many, having children means reduced household income and increased expenses, which leads to a cash flow squeeze. To prepare for changed circumstances, it’s best to map out your expected cash flow by following these basic steps:
Prepare or revise your expense budget
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.
Decide whether you’ll continue work
Should one parent stay at home or reduce working hours? Or can the income benefit of continuing to work outweigh the child care costs? You also need to consider loss of government benefits. For example, the Family Tax Benefit and the Child Care Rebate may be lost due to the additional income earned from the second spouse working.
Review your mortgage
At this point you might consider moving at least part of your mortgage to the certainty of fixed interest rates. You might also consider refinancing to improve cash flow i.e. temporary switching to an interest-only loan while you adjust to your life changes.
Putting money aside
When you’re preparing for your first child, it’s wise to put money aside to help with the added expenses.
Getting ahead of mortgage repayments, either by paying off more than is required on your home loan or building the balance of an offset facility, can give you a useful buffer.
Setting goals for savings can also help. 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%). Realistically, worthy goals can provide the necessary focus and motivation to commit to achieving them. Any lump sums you receive at this time can be set aside as well.
Making the most of government assistance
Make sure you understand the rules around the entitlements awarded by the various government schemes, and how they can affect your cash flow. Benefits include:
- Family Tax Benefit: you may be eligible if you have a dependent child or secondary student under 20 not receiving a pension, payment, or benefit such as Youth Allowance, and you also provide care for the child for at least 35% of the time. You must also meet an income test.
- Child Care Benefit or Rebate: not income tested but subject to eligibility criteria. The government covers 50% of out-of-pocket child care expenses for approved child care, up to a maximum amount per child per year, in addition to any other child care assistance.
- Parental Leave Pay: financial support for up to 18 weeks so eligible parents can take time off work to care for a newborn or recently adopted child. This is subject to the income and work test, and you must be on leave or not working from the time you become your child’s primary carer until the end of your paid parental leave.
Protecting your family against the unforeseen
It might be time to review your life and income protection insurance and ensure you have an appropriate plan in place before the baby arrives.
Ensure that your income protection policy provides you and your family with an appropriate level of cover. If you’re looking at providers, consider Virgin Income Protection which provides different levels of cover for sickness, injury and even optional involuntary redundancy. See the Product Disclosure Statement for cover details.
Also review your life insurance to ensure your family will have enough to meet day-to-day expenses should the worst happen to you. At the very least check that any life insurance cover you may have through your super continues when your employer contributions stop and that you have a valid will (including guardians) in place. Virgin Life Insurance is one to consider if you are interested in a new policy or would like to update your level of cover. For more information, visit the Virgin Life Insurance web site.
Becoming a parent can be nerve-wracking but it’s also a precious time. Give yourself the space to enjoy it by setting a plan of action allocated into manageable steps that you can put in place prior to the big day.
This information is of a general nature only and does not take into account your personal financial situation, needs or objectives. As we don’t know your financial needs we can’t advise if this insurance will suit you. Please consider the Product Disclosure Statement and Financial Services Guide before deciding whether to buy this product.
Virgin Life Insurance and Virgin Income Protection Insurance promoted by Virgin Money (Australia) Pty Limited ABN 75 103 478 897, authorised representative No 280884 of Virgin Money Financial Services Pty Ltd ABN 51 113 285 395 AFSL 286869, and distributed by TAL Direct Pty Limited ABN 39 084 666 017 AFSL 243260. St Andrew’s Insurance (Australia) Pty Ltd ABN 89 075 044 656 AFSL 239649 issues the Involuntary Unemployment Cover. All other benefits insured by TAL Life Limited ABN 70 050 109 450 AFSL 237848. For information about Virgin Money, TAL & St Andrew’s please see the Product Disclosure Statement and Financial Services Guide.