Becoming a Parent

Case study: Becoming a parent

Becoming a parent brings many financial challenges, including managing household expenses on a reduced income. Expect additional medical, dental, clothing and, of course, school fees and there is still superannuation to build and manage and assets to protect.

Managing cash flow on one income

Jess and Gareth sought our advice just before the birth of their first child. They had been together for eight years and had joint assets including a house, a car and an investment property. With two incomes about to be reduced to one and the added costs involved with a new baby, they needed help on how to manage expenses on Gareth’s salary.

Jess and Gareth were unaware exactly how much their new addition was going to cost. We helped them compose an annual budget including costs associated with the baby and discussed the possibility of implications of accessing some investments to see them through their first year.

We also discussed Jess’s plans for returning to work. Jess and Gareth weren’t eligible for the government’s Baby Bonus but they were eligible for the non-means tested Child Care Rebate once Jess returned to work. The couple wanted to have their second child within three years of their first, and for Jess to return to part-time work when their eldest was one. Ideally, Jess would become pregnant again and stop working while their second was a baby, returning to full-time work when their second child was one-and-a-half.

Budgeting for school fees

Both Jess and Gareth were keen to give their children a private school education. For couples in the middle years of their lives, school fees are a considerable expense and, ideally, should be budgeted and saved for to avoid the need to extend the house mortgage, access credit cards or take out a separate loan. By consulting us before the birth of their first child, Jess and Gareth were able to ensure that investments weren’t compromised in order to pay school fees.

Protecting your assets

We discussed the tax implications of giving priority to paying off the couple’s home – their main asset – or their investment property, or building their superannuation.

Our advice was to pay off their family home as quickly as possible and turn their investment property loan from principle and interest to interest only in order to reduce repayments. By getting ahead on their home loan repayments, they earned the option of taking a mortgage repayment break on the family home should they, at some stage in the future, need to reduce their expenses to cover school fees. We also talked about the potential timing of the future sale of their investment property and where the funds could be invested to minimise tax implications and increase cash flow when their children entered private school.

Optimising superannuation

Although it is tempting to decrease superannuation payments to the lowest mandatory levels when young family expenses are at their height, it is not necessarily a good idea. As well as being tax effective, superannuation remains an investment in your family’s future. After listening to our advice, Jess and Gareth decided to increase their superannuation voluntary contributions slightly until Jess returned to full-time work when they would review it again with the view to increasing contributions further.

Wills and estate planning

Nobody is ever keen to talk about what should happen after they die yet, with a young family about to start, there is no better time to write or update your will to ensure you have adequate protection in place to provide for family.

At our behest, Jess and Gareth investigated exactly what insurances their superannuation funds had in place and what the total figure would be to cover their home and investment property debt in full. We referred them to a specialist risk adviser to discuss income protection, life insurance, crisis cover and permanent disability insurance. With a baby on the way, and another planned, we believed that this was the only option for prudent parents to take.

On our recommendation Jess and Gareth also sought appropriate advice on composing their wills and ensuring that guardianship of their children was covered in the event that anything should happen to either one or both of them.

Jess and Gareth are now looking forward to welcoming their first child in the knowledge that they’ve done all they could to provide for his or her future.

Call StrategyOne today to arrange your obligation-free meeting: 02 9419 5233.

StrategyOne Advice Network is an authorised representative of Fitpatricks Private Wealth Pty Ltd, AFSL No. 247429, ABN 33 093 667 595 (“Fitzpatricks”).

The information in the above Case Study is of a general nature only and is not intended as a personal advice. It does not take into account your particular investment objectives, financial situation and needs. Before making a financial decision you should assess whether the advice is appropriate to your individual financial situation, needs and objectives. We recommend you consult a professional financial planner who will assist you.

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