How to financially plan for a family?
Having a baby is a wonderful blessing, full of joy and love. However there are of course some financial realities and adjustments that have to be faced by most people as part of the experience.
Wherever possible, naturally you want to focus your attention on your new expanded family without worrying unnecessarily about finances.
The key, like most things involving money and change, is in the planning.
If you already have a family budget, fantastic, it’s clearly time to review it for what your income and expenses will look like before and after baby arrives. If you don’t have one, then this really is the time where it’s worth investing the time to create one.
It’s important as early as possible to consider as a couple what your best options are around who will be the primary income earner and who will be the primary care giver, or a combination of the two.
If you are both working now, you need to check what your parental leave entitlements are, both paid and unpaid.
A government funded paid parental leave scheme now exists, for details and to check your eligibility go to www.humanservices.gov.au.
Some employers provide more generous entitlements than those that are government mandated; it’s definitely worth checking with your employers what applies to you and your partner.
Once you have considered what your likely outgoings are and your income alternatives, you will then be better placed to make a judgement around how to structure who will work and who will take time off work and for how long.
There are really two categories of expenses to consider, the one off costs getting ready for baby and your ongoing expenses in your new “post baby” world.
The area of one off costs is often where new expanded families can come unstuck and can create a real financial problem even before baby arrives.
The wide array and the costs of things you “need” to buy for baby’s arrival (such as equipment, baby and maternity clothes) can be quite staggering. It is so tempting to lash out and buy the best of everything for your new loved one, even if it goes on the credit card. Remember though, this debt may have to be paid back at a time where you have much lower income.
If you have the financial capacity and you want to do this, sure, however for most people, a bit of common sense with your purchasing will make a huge difference financially. Many of the things you might buy are likely not to be used for that long as baby grows and some families are lucky to have access to wider family “hand me downs” which can be a great way to save money along the way.
You have to be sure as well that you have got a pretty good handle on what your doctor and hospital costs are expected to be during your pregnancy and have factored these into your plans.
Then there’s your ongoing expenses. Ask any new parent, and they will tell you that life will change once baby arrives. It’s likely, particularly early on, that your leisure and entertainment costs will drop dramatically and be replaced by baby related costs such as clothes, food, more equipment and medical costs. Then, depending on your circumstances, the cost of child care. Factor your new and changed costs into your budget.
High Interest Debt Elimination
If ever there is a time to reduce your expensive high interest credit card debt, it is before baby arrives. Many people will reduce to one income, at least for a period of time, and this will make paying back credit card debt very difficult.
If you possibly can pay down your credit card debt if you have one and not add to it during this time, then this can be a real bonus for you in the long term.
Often there are unexpected costs that arise before and after baby arrives, whether medically related or just expenses that are unforseen. It’s always a good idea to build in some sort of financial buffer into your plan if at all possible to at least provide some sort of cushion against such costs.
Protecting you income and providing a surviving partner financial security in the unlikely event of the death of the primary income earner is a very important consideration at this time. You should consider or update your income protection insurance and life insurance to take into account your new expanded circumstances.
The introduction of a new member of the family means that you should update your Will, and if you don’t have one, it really is important now to put one in place.
Longer Term Planning
We’ve all read the scary stories about how much raising a child actually costs to get them to the point where they are financially independent. The message here is a simple one, and that is that you really should invest in creating a long term financial plan. Working with a licensed financial planner will really assist you in being sure your plan is appropriate.