With the baby bonus and family funds on the chopping block, find out what the budget has in store for you.
The unveiling of the 2013 budget has brought with it many changes: $3.3 billion to be set aside from 2014 -15 for the National Disability Insurance Scheme, $10 billion to be rolled out to schools as part of the Gonski reforms and unfortunately for some, the abolishment of the $5000 baby bonus.
‘The elimination of the baby bonus has caused a bit of a stir in the media in the past couple of weeks’ says Rob Dawson, Financial Advisor at PSK Financial Services and author of Insight Investment and Retirement Strategies. ‘Frankly it’s a bit of a sideshow. Some middle class families (about 28,000) will lose approx $5,000 of the current maximum baby bonus as it will be means tested’.
‘The Baby Bonus either way you look at it is not much of a bonus compared to the true long term cost of raising a child’ explains Mr. Dawson. According to the latest figures from the University of Canberra, ‘it is estimated that to raise 2 children from babies to about 23 years of age costs a total of $800,000.That’s about $440,000 for the first child and $360,000 for the second. This works out to be on average about $17,000 per child per year. The figure has risen dramatically since 2007 when the estimate was $537,000 for 2 kids to age 23. The figures vary depending on household income and ability to pay. These figures are for mainstream middle income households’.
Nevertheless, increases to the Family Tax Benefit Part A mean those who have a household earning of $94,316 a year will still receive $2000 for their first child and $1000 for each subsequent child.
It is probably better to be cut and the spare funds channelled to other areas of Government spending.
If you stand to lose out on the baby bonus altogether or receive a lower payment as a result of the budget, now is the time to be more financially aware than ever. ‘It’s critical that would-be parents are aware of the real long term cost of raising children and factor it into their long term budgeting,’ Mr. Dawson explains. You can still financially prepare to have a child with some smart financial thinking.
Finance tips to prepare yourself for having a baby
Reduce your expenses
You're going to have another family member soon enough, so it makes sense that you should try to eliminate any spending which isn't important to prepare for the additional costs that come with this. Some quick ways to start saving now include:
- Quitting smoking
- Limiting the number of times you go out for meals or drinks each week
- Taking public transport or walking to save on petrol and car maintenance
- Having a good look at your credit cards, home loan and savings accounts to ensure you're getting the most out of them
- Do the same with your utilities and other recurring expenses such as gym memberships.
Try to increase your income before you stop working
Knowing that you'll need to stop working in the near future gives you time to plan ahead. Ask for a pay rise, seek additional work or open a small internet business to lift your income before your child arrives.
Start a budget
Put a household budget together and find out where your income is going each week and know how this will change once you can no longer work. Don't forget to budget for the specific baby expenses you'll have to factor in such as doctors, ultrasounds and any learning materials you'll have to purchase.
Open a savings account for your baby
While many advocate against going overboard when it comes to thinking too far in advance about the expenses a child brings, it's still worth opening up a separate account for the initial costs a baby brings like nappies, clothes, food, toys, seats and prams.
Make your savings an automatic process
Setting up an automatic savings plan which transfers money from your transaction account to your savings account will make it easier to keep your savings growing consistently. You can even employ the savings 'bucket' method, where you have a sub-account for each savings goal you have. This makes it easier to organise your funds and see the progress you're making.
Practice safe spending
Overspending and emotional purchases are a bad combination even without expecting a child. Using the budget you hopefully set up in the first tip you can find out how much you have to spend on entertainment and other areas. If you know your limit then it's easier to stay within it.
You still have up until March 2014 to make use of the baby bonus, but even once it draws to a close it's important to know there are still ways to have your finances prepared and ready to go once the young one arrives.