Financial Planning for a Baby should Start Years Before its Arrival
Financial planning software can take the pain out of long-term planning for having a baby.
Financial planning for a baby will make the difference between the family lifestyle you want and the one you can afford.
Young women often tell me they can’t afford to have a baby. Or those who are having a baby tell me they can’t afford to take time off work. Generally, they seem quite disappointed that they can’t have a bit more time at home. But with financial planning for a baby early, things can be different.
Financial planning for a baby should start years before the event.
The most important decision is who will mind the baby when born:
- Will one parent be a stay at home mum or dad?
- Will parenting be a shared experience with both partners taking time off work? Maybe you will involve one or two days of help from grandparents or child care?
- Will the child be in full-time childcare? Have you considered the extra costs? Will it be economic to work?
Do you want to be the primary care provider for your child?
In these days, it seems very few families can afford to have one full-time person at home looking after children. But this is possible with careful planning. You will need to start the financial planning for the baby long before the event.
Here are some options you could consider.
If you plan to be a homeowner, consider buying a smaller and less expensive home. Plan for a large deposit. There are ways to plan for the time when you must rely on meeting loans payments from one salary.
Consider applying all the income of one partner to extra home loan payments. That way you can gauge if you can manage on one wage. You could refinance your loan when you move to one salary, so the new payment schedule is lower. This is because you have a much smaller debt.
There are many ways to lower your lifestyle expenses. An obvious one is to drive a cheaper car and if possible manage with one car. This may mean living very close to one partner’s workplace.
If you both work in the city, it may mean you need to rent rather than buy. Yet, this does not stop you having an investment property, in a less expensive area.
The day to day savings come from being smarter with your money. Before you buy ask yourself:
- Can I buy a suitable product second hand?
- Can I reduce the number of coffees and lunches I buy each day?
- Can I plan my meals and only buy what I need?
- Can we have cheaper holidays?
- Can I do some part-time work while I am at home?
Does your career require you to limit time off work?
Some careers don’t allow you to take a leave of absence for two or three years. In this case, you need to be very time efficient. You need to get your work done during work hours.
I find that if you want a good volunteer, the best one is always the busiest one. They know how to manage their time. So if you want to be a Super Mum, start learning the skills of time management.
Consider a live-in Nanny. She can also help with some housework or cooking so that when you are home, you have more time for your child. There may be little difference in the cost when you factor in all things.
MoneySmart will give you many financial planning ideas for your new baby.
I always recommend the place to start for advice on financial planning is MoneySmart. This is what they have to say about having a baby:
Having a baby is one of the most exciting times of your life. While nothing can quite prepare you for the changes about to happen, one area that you can get a handle on is your finances.
Please take the time to read these sections. They are very helpful for people planning for a baby:
- Costs of having a baby
- Budgeting for a baby
- Government help when having a baby
- Childcare costs
- Leaving custody of your child in your will
Financial Planning when the baby is on the way
Husband and wife financial planners, have written an eight-month financial planning guide. You should consider this plan as soon as you are pregnant.
This is what you should do each month
- Month 1: Boost your income
- Month 2: Get Budgeting
- Month 3: Set up an Emergency Fund
- Month 4: Eliminate Toxic Debt
- Month 5: Fill in the Gaps between income and expenses
- Month 6: Let the Government help
- Month 7: Think about your Super
- Month 8: Let’s go shopping
When having a baby, things may not go to plan.
- You may have twins or triplets.
- You may develop a medical condition which requires you to stop work early.
- Your baby may arrive a couple of months too soon.
Having an emergency fund for three months wages is something you should consider.
Mom Loves Best
I came across this fabulous website for all mums and mums to be. This American website is a great resource for everyone.
Check it out when you have time!
Financial Planning for a new baby with Financial Mappers.
Financial Mappers is financial planning software for the long term, say 30-years. These plans can include both you and your partner.
Each of you can take time out of the workforce.
You can plan extra home loan payments and refinance your loan when the baby arrives. The refinanced loan will reduce your monthly payments. In this example, John and Mary made extra payments of $3,000 a month for 3 years. This reduced the loan balance from $350,000 to $215,000 by the end of Year 3. They then refinanced the loan to a 25-year loan. This refinanced loan had monthly payments of only $1,524. This payment is manageable on one salary.
Women often have fewer funds in their superannuation. This is because time is taken out of the workforce. In this case, Mary she has made personal Superannuation contributions.
You could also set yourself a Savings Goal. In this case, Mary is saving for the baby’s nursery.
When you have completed a plan, you could print one of 15 Reports. This is the first section of Report called Statement of Financial Position – First 3 Years Summary.
Test alternative financial plans
Financial Mappers will let you experiment with different wealth building scenarios.
If you choose to have a financial adviser, find one who uses Financial Mappers Pro. That way both you or your adviser can create a plan and share it with the other party.
Financial Mappers provides the level of detail required by a financial adviser. But people with no financial expertise can use it. You should develop an understanding of the major principals of financial planning. You can create a wealth building plan for the Savings period. You can then plan how to spend those savings in retirement. You can build a layered retirement income stream. That is, you can plan which assets you will sell and when. The aim should be to make a financial plan which gives you the lifestyle you want in retirement.
Disclaimer: Financial Mappers does not have an Australian Financial Services License, does not offer financial planning advice and does not recommend financial products.