Money and babies
Money and babies
First comes love, then comes marriage, then comes a baby in a baby carriage!
As we all know, in this modern world having a baby may not always happen before love or marriage. However, one thing is for certain; babies are expensive and may have an impact to your cash flow and lifestyle.
So, if you don’t want to lose the precious few hours of sleep you will get with a baby around over money worries, Gianna 10 financial tips are for you!
Private versus public system investigation
One of the big debates many women have before having a baby is “am I going private or public?” meaning are they going to go through the private or public healthcare system for the prenatal and post-natal experience. This is a very personal decision based of many factors such as financial situation, previous births, medical history and location. Regardless for which way you go, here are a few things to consider:
If you go through the public system, all basic costs are covered by Medicare, but Medicare may not cover some costs such as 3D scans.
If you go via the private hospital system, you may have more flexibility in choosing your own obstetrician (though you might not have them on the actual time of birth if they are out of town or exceed the work hours they are allowed for safety policies). Have a chat with your private health insurance provider to see which medical expenses they will cover; along with any documentation you may need to make a claim (as it is likely that Medicare will not cover all the costs).
Many private health insurance providers have a waiting period of nine months or more, so chat with your healthcare provider if you would like to be covered for pregnancy and IVF.
2. Look at your super
Women tend to take (on average) 5 years out of the workforce to raise a child; and are more likely to work part-time and paid less than men for same role (and hours). Unfortunately, this results in women retiring on an average of 40% less than men due to smaller superannuation balances. Superannuation guarantee contributions (9.5%) are also not payable whilst on the Government Paid Parental Leave. In fact, the largest growing group of homelessness are older women.
To help close your retirement gap you may like to consider voluntary concessional, or non-concessional contributions to your super. This may include:
tax deductible or salary sacrifice contributions in the financial years you are earning a good income; and
spouse contributions and/or co-contributions when your income has reduced.
However, if you are making contributions in to your superannuation fund, some things to consider are preservation rules, the investment option and contribution caps.
Another way to fund your retirement is to invest in assets outside your superannuation fund or to reduce debt. Your financial adviser can recommend the right strategy for you.
3. Check out your employment leave entitlements
If you are currently employed check out maternity and parental leave provisions. The terms and conditions will depend on your organisation’s policy. Be aware that it isn’t compulsory for your employer to continue superannuation contributions whilst you are on leave without pay, however some employers do which is great! Have a look at your Intranet or where all your Human Resources information is held if you are concerned about telling your boss you are pregnant or wanting to start a family. Remember that you are protected under the Sex Discrimination Act and can take legal action if you believe you are being discriminated against based on your pregnancy, birth or breastfeeding.
4. Personal insurances
No one likes to think about ‘what could go wrong’, especially at such an exciting time of life. However, life isn’t perfect, and it is wise to have insurances sorted prior to falling pregnant, particularly when it isn’t just about you anymore.
As applying for insurances will likely require you to apply for the cover and go for underwriting whereby you will need to declare previous health conditions and declare whether you are pregnant, it is ideal to review your insurances before you fall pregnant, or you may need to wait until after your child is born.
I have seen first-hand how crucial it is to have insurance as a client was pregnant when she fell really ill. Fortunately, her and her partner had sought personal insurance advice prior to starting their family. Her income protection and trauma insurance were claimed, which meant they could afford the best level of care for her and their baby, and take time off work, while recovering from surgery and treatment. I don’t tell this to scare you, but to prepare you just-in-case.
There are 4 personal insurances and the right ones for you depends on your financial situation, objectives and needs. These 4 personal insurances are; life, total and permanent disability, trauma (also known as critical illness) and income protection.
So how will you know which covers are right for you? Good question. Sometimes, the group cover offered within superannuation may or may not be adequate. An example of a non-adequate feature could be income protection claimed via your super fund after going part time or leave without pay, if it is an ‘indemnity policy’. Indemnity means that you will be required to prove your income leading up to the date of claim, as short as 12 months prior to claim, which may be an issue if your pay has decreased. Whereas some income protection policies offer a guaranteed monthly benefit (agreed value policy) whereby you and your insurance company agree to the monthly benefit they will pay you when you make a claim, regardless of a change to your income after the policy was put in place.
Some trauma cover policies also allow you to choose to be covered for pregnancy to ensure you’re covered in the event of complications.
After your baby is born, some policies allow you to increase your cover via Life Events, up to a certain amount without underwriting. Life events usually cover events such as getting married, divorce, taking out a mortgage or having a baby. If you’re interested, have a chat with your financial planner or insurance provider for more information.
Overall, to determine which policies and level of cover are right for you, your financial planner can chat to various insurance providers on your behalf and structure your policies so they are affordable, adequate and tax effective.
Budgeting can be as sexy as changing a dirty nappy—but it is a good way to see where your expenses are now; and where they will be post baby. Foresight can help you determine whether you will have a cash flow deficit, and will allow you to put plans in place to assist during what can be, a financially difficult time.
To do a budget you need to know what your current spending habits are. If you don’t have money management software like Xero or Moneysoft set up to track and reconcile your expenses, you may like to use the Government’s free Money Smart Track My Spend app for 28 days to discover your incidental spending habits and refer to your bank account statements. Another Money Smart useful tool is the budget planner.
Some options to manage a cash flow deficit that may be considered are:
decreasing discretionary expenses such as groceries and clothes;
decreasing non-discretionary expenses such as a mortgage repayment holiday; and/or
increasing your income from selling investment assets or by altering the structures of your assets so they have a higher net yield (such as positively geared property or turning off a dividend reinvestment scheme for shares and managed fund portfolios).**
6. Government paid parental leave and Family Tax Benefits
You may be eligible for Government support whilst on leave and starting your family.
Paid Parental Leave is a short-term payment while you are on leave from work and looking after your young child. To be eligible you need to satisfy the work test and have an adjusted taxable income of less than $150,000 in the previous financial year. The Mother does not need to take time off work to receive the Government’s parental leave benefits. So, if you’re the highest income earner in the household and love your career, you may wish to swap the parental leave recipient to your partner. The Parental Leave can be applied for until your child turns 1.
Whilst your adjusted taxable income as a family has been reduced whilst on leave or returning to work on reduced hours, you may also be eligible for Family Tax Benefit A and/or B. Check out the Human Resources website for more information.
** Keep in mind that selling investments can impact your adjusted taxable income for child care subsidy, parental leave and family tax benefits. If you are considering selling assets, ensure you seek financial advice first to understand the opportunity costs.
7. Child care subsidy
The Child Care Subsidy is paid directly to the child care provider and the level of subsidy provided is based on factors such as whether your child is immunised, the type of child care used, age of the child, family income and the hours of ‘activities’ such as paid or unpaid work (for example, volunteer work) of the parents.
These subsidies can be claimed online via MyGov. For more information, refer to www.humanservices.gov.au/childcaresubsidy
An alternative to child care centres you may consider is an Au Pair. For more information, visit www.myaupair.com.au
8. Emergency fund
Having an emergency fund is a must regardless of whether you are planning to have a baby, or not, to reduce financial stress. Having a dedicated fund negates the need to use credit cards or sell your assets in an emergency.
Consider having enough for three months’ expenses—it may need to be more (or less) depending on your situation. You may need more if you have dependents living at home and a mortgage; and less if you are single without a mortgage or dependents.
8. Review your estate plans
Just like insurance, estate planning is essential for just-in-case. Chat with an estate planner to update your will, guardianship and enduring power of attorney. This may also include deciding who will look after your child if you pass away and they are orphaned.
Estate planning also includes updating your binding death benefit nominations for your superannuation. This is because superannuation does not automatically form part of your estate when you die.
If you have young kids and lots of assets, you may like to chat with your estate planner about a testamentary trust for asset protection and tax strategies.
Investing is the biggest step towards becoming financially free because it can create passive income or wealth to pay for all living and lifestyle expenses without having to physically work for an income — allowing you more time to spend with your loved ones. Refer to my 5 Steps to Financial Freedom for more information.
If you are keen to start investing in your child’s future and education, there are various strategies and structures to consider including an education bond. Your accountant or financial planner can provide you with advice regarding the best tax structure and investments that are right for you, based on your current financial situation, objectives and needs.
Gianna Thomson and Thomson Wealth Pty Ltd ACN 626 920 161 trading as Gianna Thomson are authorised representatives of Fitzpatricks Private Wealth Pty Ltd, ABN 33 093 667 595, AFSL 247 429. This is general information only and does not consider your personal circumstances, needs and objectives. It is important you seek advice from a professional financial adviser prior to making any decisions.