Planning Finances with a Growing Family

James O'Reilly

Growing a family is a big financial decision, and you can ensure your kids get the best start in life with better planning around key areas like education, better management of your priorities and maximising Government subsidies.

Growing a family is a big financial decision, and you can ensure your kids get the best start in life with better planning around key areas like education, better management of your priorities and maximising Government subsidies.

According to studies done by The National Centre for Social and Economic Modelling, University of Canberra, the cost of raising children rose 50 percent from 2007 to 2012, outpacing growth in family income of 25 percent over the same period.i

The lifetime cost of raising two children for middle-income families was $812,000, nearly double that for lower-income families ($474,000). Higher income families spent $1,097,000 on average, due largely to the cost of private education.ii

The costs continue to rise as kids get older across all income groups. For high-income families, the weekly cost of children aged 18-24 is five times the cost of children aged 0-4 and consumes more than one-fifth of family income.

Parents sending their kids to private schools spent an average of $216 a week on school fees, compared with $12 for public schools and $81 for Catholic schools.

Managing priorities

With high costs to raise children, most parents will need to make difficult financial and lifestyle trade-offs depending on their priorities. For example, will one parent take time out of the workforce or reduce their hours while the children are young? Or should both parents work full-time to get on top of the mortgage?

Tracking the family budget becomes even more important once kids enter the picture. Take time to understand your household expenses, not just those relating to children.

Many people come to us asking if there’s a way to plan for their children’s futures while maintaining their current lifestyle. Parenting has its challenges and it’s normal to not want to sacrifice on holidays, eating out or the other little luxuries that make you happy.

Our experience is that these decsions become much easier once you get clear on your priorities and get clear on the things you’re willing to let go, and the things you can’t do without.

Childcare and education

Childcare is a major expense for many parents. Having help from family and friends can make a huge difference to your back pocket at the end of each week, but out-of-home care will still be a necessity for most.

Most families will benefit from the Child Care Subsidy, which offers a ‘refund’ of up to 85% of your Child Care expenses. The amount you receive will largely depend on your income, with maximum payment available for household incomes below $66,958. Your percentage entitlement reduces down to 0% if your household income exceeds $351,248. For this reason it’s vital that self-employed individuals plan their income for these years, to ensure maximum eligibility where possible.

Nannies are also popular with families who work irregular hours, and many parents don’t realise that there may be subsidies available for those using this form of child care. Parents who use nannies should visit the Payment Finder website within the Department of Human Services to confirm any eligibility for allowances.

Private vs Public?

One of the biggest financial decisions you will make as a parent is whether to send your kids to private or public schooling. There are sound arguments for either option, and our experience is that decisions (and subsequent planning) should be made as early as possible.

A common error we see is parents not properly tallying the cost of education. Beyond annual tuition fees, you also need to include associated costs like school uniforms, excursions, school supplies and computers.

Our experiences is that these ‘sundry items’ are much more expensive at private schools, with uniforms often exceeding $1,000 and excursions that require valid passports! The alternative public costs will be lower, potentially allowing you to enjoy more of your own family holidays or allow one parent to work less and be more present in your children’s day-to-day lives.

Taking action

Once a decision has been reached, the best time to start saving is generally now. Most parents tend to use simple savings vehicles like bank accounts and mortgage offset funds, however there are a number of specialist investment funds designed to help families save for future education expenses which we have found to be much more effective when comparing your options side-by-side.

The earlier you start a structured savings plan, as well as seeking some professional advice where needed, the greater the educational and lifestyle choices that will be open to you.

i NATSEM Income and Wealth Report: The cost of raising kids in Australia, May 2013

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