Starting a family, or planning to start a family, can be a joyous and exciting time. But make no mistake, it can also be a challenging time and an emotional rollercoaster. To help smooth the journey it is important to get on top of your day-to-day finances early. Studies have shown that at a minimum it costs more than $300,000 for two parents to raise two children up to the age of 17. And if you plan ahead these costs won’t be as daunting in the longer term.
When couples or singles approach a financial adviser about starting a family, three common questions arise: Can we/I afford to have a baby? What benefits are we/am I entitled to? And what does our/my financial future look like?
Renee Tang, a Newcastle-based financial planner at First State Super, says there’s not a common answer to these questions as every person’s situation is unique. However, a good financial planner will not only answer these questions, but dig deeper to better understand where you want to be in the long term.
Can you afford it?
One of the first considerations when starting a family is the potential loss of household income and how to manage it. Two common scenarios that need to be addressed are: what if the primary carer loses some or all of their income and how long do the parents plan to be out of work?
James Gerrard, director and financial planner at financialadvisor.com.au, says a common scenario is a couple who are saving $2000-$3000 a month on two incomes before having a child. If one income is lost for 12 months, it’s likely those monthly savings will fall – even with government support.
“If you’re going backward $2000 per month in cash flow, then you’ll need to save at least $24,000 before the baby arrives – otherwise you’re going to be eating into your savings to get through that [12-month] period,” says Gerrard.
The Sydney-based adviser says savings will also be important for when one partner re-enters the workforce as they’ll often be working part-time. This also means household income is down before the child arrives and now there’s the increased daily expense of looking after a little one.
Tang says parents need to consider what financial commitments they will have before and after the child is born, such as doctors’ and hospital bills, ultrasounds and other tests, birthing classes and child care; as well as mortgage or car repayments. She says it is common for couples to buy a house and have a child in tandem and they’ll need to think about what this means for their budget.
“Think whether your current accommodation is suitable or even whether your car is suitable,” says Tang. “If a child is to come along, maybe the two-seater convertible is no longer an option.”
Tania Tonkin, director and financial planner at DMCA advisory (part of the IOOF group), says that the number one thing to do if you’ve bought a house and have a child on the way is not to overstretch yourself with mortgage repayments.
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