It’s no exaggeration that expanding your family will be the biggest economic decision you’ll ever make. The costs of raising children in Australia are skyrocketing, along with house prices and living expenses. And if you’ve grumbled that the only total that doesn’t seem to be ballooning is the one on your pay slip, you’d be right.
According to the latest AMP.NATSEM Cost of Kids report (2013), the cost of raising children rose 50 per cent from 2007 to 2012, while family income rose only 25 per cent over the same period.
The cost of bringing up two children for a typical middle-income family has risen to an eye-watering $812,000, up from $537,000 in 2007 and almost double the $448,000 costs in 2002.
The costs grow along with your kids, too. For high income families – the most likely to be paying private school fees – 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, says the same report.
While raising kids can seem like a steep uphill climb, fiscally speaking, there’s no need to reach for the birth control and opt for a pet goldfish instead. Financial experts agree that with forward thinking and smart decisions, you can relish life with a young family while laying foundations for a secure future.
“It is ridiculous how much it costs to raise a family now,” says financial planner and commentator Paul Pellegrino from Partners in Planning Group, Melbourne. “But it’s also one of the most rewarding experiences you can have in life. It should be a time where you can enjoy the little things and not have to worry about financial strain. The earlier you start a structured savings plan, the greater the educational and lifestyle choices you’ll have available.”
Know your cash flow
Paul Pellegrino says that the secret to any good business is simple: tracking your spending. “It’s amazing how many of us just don’t do this on a personal level, though,” he says.
“Set up a transparent family budgeting system, and increase your accountability. We advise clients to physically write down everything they spend for at least six weeks, and look at how much they waste. It’s old school, but it works. Often, they’re amazed by how much money trickles away on the small fluffy stuff – a coffee here and there, for example. Then ask yourself: what do we really need?”
The biggest chunk: childcare
For families, the greatest need will almost certainly be childcare. The 2016 findings from the annual Household, Income and Labour Dynamics in Australia survey showed that up to 65 per cent of households that use childcare for children under 13 pay for some, or all, of that care. Spiraling costs of childcare continue to put pressure on families, with daycare centre fees in inner cities soaring to as much as $160 per day. No wonder some couples call childcare their ‘second mortgage.’
Under the current system, all families, regardless of income, can claim federal government assistance via the childcare rebate for 50 per cent of their childcare costs, up to a maximum of $7,500 per child a year. This can ease the burden, but that $7,500 accumulates fast if your kids are in full-time childcare.
After that, there’s school. Paul Pellegrino recommends: “Ask yourself as early as possible, at your child’s birth or even before: public, private or Catholic? This will decide the costs you need to budget for.”
The Cost of Kids report showed that parents sending their kids to private schools spent an average of $216 a week on fees, compared with $12 for public schools and $81 for Catholic schools.
When counting the cost of education, remember the extras add up, too. School uniforms, excursions, school supplies and computers all push up that bottom line.
Be a saver
At this time in life, saving should become a habit, says Pellegrino. “Start early and start small,” he says. “We start our clients with breadcrumbs: $50 a week, then $70, and so on until it becomes a habit. I also recommend the ‘carrot and stick’ method. If you really want something, you will save for it.
“The great thing is that as we get older, saving becomes more important, and also easier.”
A health check for your health insurance
Now’s the time to make sure you’re getting the very best value from your health insurance, and there are plenty of ways to make your dollars work harder, says Laura Crowden from health insurance experts iSelect. “Review your cover and make sure it suits your current needs,” she says. “Not checking your policy could result in paying for things you don’t need. If you’re certain that you’ve finished having babies, for example, drop your pregnancy cover.”
Shopping around can pay dividends, says Crowden. “Take the time to speak to a private health insurance expert to find out if your current policy is the best value or if you could benefit from switching to a policy that better suits your needs, life stage and budget. It’s worth comparing cover as like-for-like hospital cover can vary between different insurers by upwards of $350 per year.
If you do decide to change, bear in mind that your hospital wait periods will most likely be protected, she adds. “Many people think that by changing policy or provider they’ll lose their hospital benefit waiting periods but this isn’t always true. Any waiting periods you’ve already served will be protected by law if you switch to an equivalent or lower level of hospital cover.”
How and when you pay your premiums can also save money, Crowden says. “If you are in a position to do so, pre-paying your annual premium upfront before April 1 will lock in current rates and help you avoid any premium increase for the subsequent 12 months. And look for payment discounts, as some providers offer a discount for paying by direct-debit.”
Also, she says, make sure you review your extras. “If you don’t think you’ll use them, why pay for them? And consider flexible extras products that combine your separate extras limits into a single annual limit for you to use across different services.”
“Life insurance is not for the old!” says Laura Crowden. “The key time is in these young family years and it’s about protection for your family’s lifestyle if the unexpected happens. Income protection is also important, for the same reason.”
Estate planning is crucial, adds Paul Pellegrino. “Considering the inheritance that your children will receive one day may seem a lifetime away but it’s important to get it sorted from day one.”
Saving begins at home
Your home itself can trigger a multitude of potential savings. You might want to take advantage of record low interest rates and shop around for a more competitive home loan. Also, says Paul Pellegrino, your household bills can be streamlined. “Think efficient. Every step you make when changing appliances and renovating at home should be begin with what will save you money.”
As your kids become teenagers, you may need to adjust your broadband plan to accommodate more devices and data usage. And as they grow older still, you may find yourself with extra cars that you might consider adding to a multi-car insurance policy.
As the kids keep growing, you’ll need to be forever on your toes, reviewing your outgoings and your budget. They might stick around for longer, too. In these expensive times, almost one in four young Australians between the ages of 20 and 34 still live at home. All the more reason to plan ahead: those family years may not be as fleeting as you thought.
At iSelect, we get that most people find choosing the right health insurance policy boring. But we understand that it’s really important to always have the right level of cover. Our expert advisers will give you the confidence to make the right call on health insurance for you and your family.
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