Baby on the way, and already feeling financially and mentally burdened?
It’s hardly surprising given that research by the National Centre for Social and Economic Modelling (NATSEM) suggests it costs more than $400,000 to raise one child from birth until they finish studying.
But if it’s any comfort, you’re far from alone in feeling overwhelmed by the financial onslaught of parenthood.
Results from AMP’s Financial Wellness study suggest the period before your firstborn arrives triggers life’s most financially stressful period, with over two-thirds (72 per cent) feeling financially insecure during this time.
However, with basic answers to the most obvious questions, principal of Paramount Financial Solutions Wayne Leggett said expectant parents can quickly dial down their ‘pre-baby blues’.
“The best advice you’ll ever receive is to try and create a financial buffer, and an offset account against your home loan is an ideal place for this,” Mr Leggett said.
He also suggests new parents use the six months before baby arrives to get their financial house in order.
While budgeting for essential baby items means forking out for some upfront stuff, like a cot, car seat, change-table, baby bath, stroller, bedding and clothes, Leggett urges parents to display common sense.
He recommends either buying, borrowing or swapping recycled items that your baby will rapidly outgrow.
“It’s the same with the daily food and nappy requirements. Work out a weekly budget, and contemplate buying in bulk or home-brands to stretch your money further,” Mr Leggett said.
If you don’t already have private health insurance, now urges Mr Leggett, is the time to weigh up the benefits, especially if you’re planning to ‘go private’ with the whole shebang – from prenatal care, through to the actual birth, plus other birth-related costs.
“Given that there are waiting periods before you can claim, it makes financial sense to have your private health insurance in place, well before contemplating having a baby,” he said.
But health isn’t the only insurance cover you need to consider at this juncture.
Given that Centrelink isn’t going to cut the mustard if you’re off work due to injury or illness, he says it’s important to consider what type of personal insurance cover – including life, income protection, total and permanent disablement (TPD) – might be needed to protect your family’s lifestyle during that time.
“Ideally, you want income protection that will cover 75 per cent of your income,” Mr Leggett said.
“Paying for life and TPD insurance via your super avoids eating into the household budget.”
Know your entitlements
Assuming you meet certain criteria, you may also be eligible for the Newborn Upfront Payment of $560.
To help with the rising cost of raising children, there’s also the family tax benefit, which, based on certain criteria, is available after the end of the financial year.
As well as finding out what benefits you and baby are entitled to, AMP director of workplace super Ilaine Anderson suggests asking your employer for a checklist of their parental leave policies, especially with some firms offering considerably more than the government’s maximum 18 weeks’ pay.
Equally important, adds Mr Leggett, honestly assess how receptive you or your partner’s boss is to flexible workplace arrangements, and what child-rearing/minding support you’ll receive from family.
“It’s not uncommon for a couple to alternate the child-rearing role, based on who’s got the more stable and/or better-paid job, the ability to juggle time off, and willingness of next of kin to help,” he said.
Funding childcare and education
In recognition that it’s expensive – between $70 and $190 a day – the government also offers rebates and benefits to help with the cost of (approved) child care, and this is contingent on how much money you earn.
Given that most couples couldn’t fund private [or state] school fees – which, at the secondary level, typically cost an average $20,000 annually – out of cash flow, Mr Leggett suggests putting a little aside each week as early as possible.
He says that while there are some tax benefits for opening education-specific managed investment funds, the downside is that access to funds is restrictive.
“Assuming you have the discipline to squirrel future school fees into an offset account and leave it there, this could be a smarter option, with a rate of return that is likely just as good,” Mr Leggett said.