The baby budget
Clearly my sister is expecting her first baby, and in turn I am expecting my first niece and I couldn’t be happier. It totally excites me to think of all the amazing toys and outfits that I can buy for her as well as all of the incriminating things I can tell her about her parents as she gets older. I honestly can’t wait to meet her.
As anyone with children will know, life changes when you expand your family, and because of this there are various changes that you need to make to your everyday life and your finances.
As I have been going through this process with my sister, I thought I would share some of the financial considerations when having a baby.
Life insurance- If you have been reading the blog for a while now you will know how I feel about insurance. It’s important and 9 out of 10 people actually need it. If you are bringing a life into the world who depends on you 100%, then what would they do if something happened to you? If you or your partner became disabled or could not work how would you support the little one?
This is specifically important when there is only one bread winner, which is generally the case in the earlier years. A huge amount of pressure goes on one person to bring home an income, so insurance helps to protect that.
Another type of insurance that most people don’t know about is ‘child’s trauma’. This type of insurance can usually be added to your life insurance policies and is a lump sum payable should your child be diagnosed with a traumatic illness. Think leukemia, severe burns, Meningitis, deafness etc. All very real threats, and when it is your flesh and blood at risk, this payment can go a long way to pay for the treatment needed during these times or for you to take time off to care for your child. For some policies you can even get up to $20,000 worth of cover for free, so it is definitely worth the enquiry.
Each investment bond is slightly different however you may be eligible to receive up to a 30% tax rebate for withdrawals from these funds as they are classed as a ‘scholarship plan’ under the ATO laws.
It is important to note though that there are restrictions and costs for these investment vehicles so ensure you understand what you are getting yourself into before you commit.
Health Insurance- Most health insurance providers usually offer a family plan that covers you and all of your children up to the age of 21. Depending on your yearly income, you could skip out on paying the medicare levy surcharge by having health insurance too.
Government Benefits- I have been going through the post baby budget process with my sister in preparations, and let me tell you, most people will feel the drop of income, so it is important to understand what you are entitled to through centrelink.
Unfortunately, unless your due date is prior to 1 March 2014, you will not have access to the ‘Baby Bonus’. You may however be able to receive Family Tax benefit Part A & B, assuming you earn under the income tests.
Whilst Tony Abbott has voiced his desire to increase the Paid Parental Leave scheme, it is still only a maximum of 18 weeks paid leave available. You should take this into account when working out your post baby budget.
Here is a case study to put it into perspective. Jonathon is 26 and will continue to work after the baby is born, he earns $60,000pa. Sarah, also 26, will be taking maternity leave for a minimum of 6 months after the baby is born. They rent their apartment at $250 per week and are about to have their first child.
Sarah will qualify for 18 weeks of Paid Parental Leave at the rate of $622.10 per week, before tax. On top of this, the below table outlines the estimated benefits available to the couple based on the Jonathon’s salary, and the 18 weeks Paid Parental Leave entitlements.
|Family tax benefit Part A||
|Family tax benefit Part B*||
|Clean energy supplement Part A||
|Clean energy supplement Part B||
*It is important to note that you cannot receive Family Tax Benefit Part B during the paid parental leave period. So, after the 18 weeks of payment is up for Sarah, she will then qualify for the $100.24 per fortnight payment.
Once Sarah decides to go back to work, she will be eligible for the Childcare Rebate as well as the Childcare Benefit. This ensures that the government pays for 50% of your childcare costs to promote parents to get back into the workforce.
There is so much to know when it comes to government benefits so make sure you are on the front foot because Centrelink will not back pay your entitlements if you do not lodge your forms at the appropriate time. It is also your responsibility to know, or at least enquire as to what may or may not be available to you.
So whilst cots and baby showers are probably the more exciting things to think about leading up to the birth of your child, it is really important to prepare for the changing financial landscape you will be thrust into. Ensuring it is all prepared will reduce any stress and then all you have to worry about is changing nappies and organising when Aunty Cara is baby sitting.
– This post is from our resident senior financial planner, Cara Brett. Check out her details in our about us page.