ARE YOUR FINANCES READY FOR KIDS?
It’s a common sentiment that most people want to ‘get their finances sorted’ before they have kids. The questions is, how do you know when your finances are actually ready and what should you be doing to prepare?
Look at where you are at right now. If you haven’t already got a budget then this is the first step you need to take. What debt do you have? Do you have any savings or do you live pay to pay? If so, it doesn’t mean you can’t have a baby, but now is the time to get a bit of structure and have a better understanding as to where your money is going.
If you are currently spending everything you earn, how do you expect to pay for the extras that come with being parents?
Create the post baby budget
Once you know where you are now, you then need to start mapping what your post baby budget would look like. This needs to include any reduced income due to maternity leave, and the added expenses such as nappies, formula, and child care.
Setting a realistic budget will let you know if you have enough money for all of these things, and should highlight how long you can take off for maternity leave if that is what you are currently considering.
Do you have an emergency fund?
This is an important feature in any well managed personal budget, but this is even more important if you are expanding the family. Firstly, if you don’t have one of these then you need to consider it. My general rule is to aim for 3 months’ worth of household expenses to be set aside for an ‘in case of emergency’ situation. Think about medical expenses, white goods breaking, freak weather events that mean you have to pay for an insurance excess. It’s hard to plan for all of these, so having an emergency fund is super important.
Do you have stable income?
Everyone’s jobs are different, but you need to consider how stable your income is. It may be slightly different from month to month depending on overtime etc, but do you feel confident that your job isn’t going anywhere? Think about the industry you are in, are there a lot of redundancies going around at the moment? Are you getting regular, consistent hours or is it all over the place?
It is likely the case that you will need to rely on one income for a period of time. Ensuring that income is as reliable as possible is important. This could mean getting a full time, permanent job or trying to position yourself in a large company that has great employee benefits.
An interesting trend to consider is that most employers are putting 6 month probationary periods into new contracts now, so if you are after a new role that is something to be mindful of.
Do you have all of your life insurances sorted?
Life insurance (including disability and income protection) are so much more important when you have dependents. Having enough life insurance to look after your children for the long term if something were to happen to you, should be priority number one. Depending on your personal situation, you can fund this via your superannuation account or your everyday budget.
It’s not all about the money, but putting yourself in the best position in advance will mean that when you get there, you will know exactly what your money is doing and how much you have to spend on your new family.
We love to spend money on cute outfits and overpriced gifts but the best gift you can give your future children is a stable and loving home, one that is not overflowing with debt, money stress and late bill notices.
This post is from our resident Financial Planner Cara Brett, check out her details in the About Us section.