Tribeca’s top financial tips for new parents
1. Set up an education investment or bond early to cater for future costs
2. Be clear on all your entitlements (maternity/paternity leave, childcare, etc)
3. Always put family and connection first over ‘nice to have’ lifestyle choices
4. Understand your new cashflow position as you’ll be spending more and earning less
5. Look at ways to maintain your super contributions while on maternity/paternity leave
6. Plan for all the knowns of increased costs, and be prepared for the unknowns
7. If upgrading the home is likely, set realistic expectations with your borrowing capacity
8. Talk to your financial advisor early to create a plan; don’t wait until after the birth
So you’ve just become a parent or are thinking about having kids. It’s such an amazing time in your life. No doubt there’s plenty of thoughts going through your mind; one of those likely around being financially secure now and for the long-term.
As planning for the cost of kids is one of the most common areas of our financial advice, we asked some of our Tribeca Tribe for their top tips. Here’s a selection.
Something that new parents often don’t know about or consider too late is an investment or education bond. These offer a lot of tax benefits (regardless if you redraw for education or on-education purposes) but they do need to be set up 10 years before the money will be used to get full advantages. They are a great way of saving for these costs, as you can make regular contributions and start with as little as $1,000.
The thing that springs to mind for me is if one or both of the parents are taking parental leave, understanding what that means for any income protection cover that they have. This also includes understanding how their employer’s parental leave policy will impact them. The same goes for Centrelink’s paid parental leave. The other part to this is also figuring out what childcare would cost if they were to choose to return to work.
Click here for our three golden rules for affording private school fees
Learn the power of AND. It’s not work OR family; it’s work AND family. Don’t fall for the trap of competing to maximise your lifestyle on ‘stuff’ that doesn’t matter. Always put family and connection first, even if it means living in a less affluent area, driving an older car, or travelling to less expensive destinations. With good planning you can still have most of the stuff, but never at the expense of family.
For me, one of the most important considerations for new parents is gaining a clear understanding of their NEW cashflow position. As a new parent you will be spending more and earning less. You need to plan for how your day-to-day living expenses will be different with extra costs such as nappies, food, clothing and medical services. And you need to factor in initial big ticket items like a pram, car seat, bedroom furniture and so on.
One of the points that’s often forgotten is making sure that when the parent/s go on maternity or paternity leave, their super isn’t neglected. There are many options you may be able to consider, like taking advantage of spouse contributions to give the higher earner a tax offset. Or looking into government co-contribution or contribution splitting to make sure you don’t miss out on contributions if not working full time.
Planning, planning, planning. That’s the key, from forecasting cashflow BEFORE the baby arrives to thinking about the practicalities of childcare taking in the costs, hours, availability and contingencies when the baby is ill. You have to be prepared for the knowns, and the unknowns. One thing my parents forgot to plan for was putting my name down at birth for MCC membership registration (I’m still getting over it).
Read our recent article on developing a child’s resilience
While the home you’re in might suit you and your partner now, will it still suit when you have a 4-year old running around? Understand that your borrowing capacity may be impacted, so set yourself realistic expectations for what you will be able to borrow for the family home you imagine. Also, the decision between public/private health is an important consideration – know the waiting periods as you can’t always plan the ‘timing’ of pregnancy. It may happen really quickly or could not happen for some time.
Plan ahead as much as you can (except of course in the situation of a wonderful surprise) to prepare for the cost of having a child. This includes creating a ‘buffer’ savings account in preparation for non-paid maternity or paternity leave and/or reduced return to work. It’s the perfect time to meet with a financial advisor to create and execute your plans for the short and long-term. Don’t wait until after the baby arrives.