Home General Finance 5 Financial Tips You Should Know Now You’re a Parent

5 Financial Tips You Should Know Now You’re a Parent

written by Shelley Marsh 20/08/2013
Financial tips for parents

Let’s face it parenthood changes everything.  From your social life to your ability to go to the bathroom in peace.  Things are no longer just about you and your partner, there are other considerations that must be made.  With parenthood also comes extra financial responsibility, there are extra costs and quite often less income coming in the door as one partner stays home or changes to part time work.

So here are five financial tips that you need to know now you are a parent:

  1. You should make sure you have a Will. I know you don’t want to think about it, but a Will is crucial in making sure that your children are well looked after should anything happen to you, your partner or both of you.  It gives you the ability to say how your assets will be distributed and even who should have custody of your children should the worst case scenario occur.  If you have complicated family relations then a Will is even more crucial to ensure that your wishes are clear.  A Will doesn’t have to be expensive, you can get a Will kit from your local newsagents, do it online or do it through your solicitor (definitely worth the money if your affairs are complex).  If you already have a Will make sure it is updated to account for any changes in circumstance such as additional children or divorce.
  2. You should consider Life Insurance.  If it would be difficult for your partner to raise your children without your income, then you should have life insurance.  The same is true if you couldn’t afford to raise your children without your partners income, then you need life insurance on your partner.  Without trying to sound like a bad daytime TV ad, life insurance will give you peace of mind.  If you already have life insurance, you must check it and make sure it is enough now you have children.
  3. Get rid of your credit card debt.  There are several things the banks won’t tell you about your credit card.  Number one is that credit card debt is crazy expensive.  Generally speaking the banks charge you about 19% on your credit card, compared to official interest rates of 2.75%!  Secondly, if you pay the minimum repayment it will take you an eternity to get rid of it.  Just check your statement.  The banks now have to tell you how long it will take to pay off your balance at the minimum repayment.  Last time I checked mine, it was 64 years and 7 months!  The only way to use a credit card is to pay it off every single month.  If you can’t do this then cut it up and ramp up repayments to pay the debt down.  Please click here to see my top tips for getting rid of your credit card debt.
  4. Make sure you have an emergency fund saved.  You should aim to have six months of after tax income saved to ensure that you have the confidence to deal with any bumps in the road that life might bring like another baby or losing your job.  My mother always told me that when financial problems walk in the door love flies out the window.  Having an emergency fund helps to relieve financial stress when things inevitably do not go to plan.
  5. Be aware of the huge tax rates that can be charged on savings in your child’s name.  Most people don’t know this but investing directly in your child’s name is unlikely to be the most tax effective way of saving for your child.  This is due to tough penalty taxes for minors.  The penalty tax is applied to “unearned income”, that is money the child has not worked for and includes income such as interest, share dividends and distributions from trusts.  If you invest under your child’s name, the first $417 of unearned income is tax free but after that tax is charged at 66%!  Any unearned income after $1,308 is taxed at 45%!  Ouch! (Click here to see my full post on tax rates applied to children’s investments)

Parenthood changes everything.  I hope these tips help to better navigate the financial responsibilities that come along with it.

If you liked this post you might also like to read:

How To Teach Your Children About Money

3 Things You Really Should Know When Saving And Investing for Your Children

How To Pay Off Your Mortgage Faster

How To Boost Your Superannuation Balance While You’re A Stay At Home Mum

* Please note this is for your general information only and does not constitute financial advice.  Please see a financial planner or accountant to get advice specific to your individual needs.

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37 comments

Lizzy Allan 20/08/2013 at 7:41 am

This is a really interesting post. I had no idea that penalty tax for unearned income was so high! And thanks for reminding me that I really need to write a will – I’m about a decade behind with that one!

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Shelley Marsh 20/08/2013 at 12:16 pm

Hi Lizzy, yes it is a shock to find out that children are taxed so highly. It is not something that is written or spoken about very often. Thanks Money Mummy.

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Aroha @ Colours of Sunset 20/08/2013 at 7:52 am

Great advice. Especially #5. I think lots of people don’t know about that and even thought it is completely ludicrous, it’s still going to happen! I would also add, if you have a house, any significant savings for your child/ren is better off being paid on the mortgage, then draw against that later if you need money for your kids.

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Shelley Marsh 20/08/2013 at 12:17 pm

Hi Aroha, Yes I am a big fan of paying off the mortgage as an investment strategy too. I will be writing more on this in the coming weeks. Thanks Money Mummy.

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Alison at The Thrifty Issue 20/08/2013 at 8:50 am

Thanks again Money Mummy! We have the Will, our Life Insurance is covered with our Super and no Credit Card debt … now we just need to get some savings together!! Great tips. Cheers, Alison

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Shelley Marsh 20/08/2013 at 12:18 pm

Thanks Alison! Always great to have you pop by. Money Mummy

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Wendy Parks 20/08/2013 at 2:36 pm

We opened a bank account for my daughter when she was born, thinking we were doing the smart thing, but then got shocked at tax time when we were asked how much interest her account earned! At this stage it is not enough to worry about, but as the account is growing it is going to become an issue. We are going to have to find a creative solution to that one!

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Shelley Marsh 21/08/2013 at 12:36 pm

Hi Wendy! Yes investing for your children is tricky. I look forward to hearing about your “creative” solution when you get there! 🙂 Money Mummy

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Emily @ Have a laugh on me 20/08/2013 at 7:39 pm

SHIT SHIT we still haven’t done our wills, I KNOW SO BAD! We’re good with the rest Shelley, great tips 🙂

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Shelley Marsh 21/08/2013 at 12:34 pm

Hi Emily! Yes a will is easy to forget – let’s face who wants to think about it! Well done on the rest though! Money Mummy

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Brish Wilson 20/08/2013 at 9:12 pm

I made it my mission this year to pay out my credit card – it wasn’t exorbitant, but it was so hard to move!! I finally reached my goal last month and it is such a relief to have it (almost) gone. I looked it as a Debt Crisis and spent the first half paying it off. Such a relief, and now there is more money to put towards paying off the mortgage early and doing what we really want to do.

And yes, I really do need to udpate my will. Haven’t done it since before my youngest was born.

Cheers,
Brish

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Shelley Marsh 21/08/2013 at 12:32 pm

Hi Brish! Well done! Paying off your credit card debt is quite an achievement and then redirecting the money to something else is such a great idea. You are well on your way to financial freedom. Money Mummy

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EssentiallyJess 20/08/2013 at 9:25 pm

Some awesome tips here. We try not to have any credit card debt which is easier said than done some months. Would love to have six months worth of savings, but it can be so hard to get ahead sometimes

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Shelley Marsh 21/08/2013 at 12:30 pm

Hi Jess, yes it is so hard to get ahead when you have a family but you are off to a great start by not having any credit card debt. Well done! Money Mummy.

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The Plumbette 20/08/2013 at 9:53 pm

We’ve got the wills and the life insurance but the savings could be better. I also didn’t realize the tax rates were high on children’s savings accounts. I put $5 each week into my children’s accounts and they have more than $400 in one. Thank you for advising on this.

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Shelley Marsh 21/08/2013 at 12:55 pm

Hi Plumbette! You don’t have to worry about it until the account is earning more than $417 in interest. So for the moment you are ok but it is something to watch out for as the account grows. Money Mummy

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Chantel 21/08/2013 at 12:25 am

Urrgh – money sux!!! We have recently met with a financial advisor, so have now got all these in place – didnt know about the child investments though!!!!!

Hello from #teamIBOT

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Shelley Marsh 21/08/2013 at 12:28 pm

Hi Chantel! Glad to hear you have got some help and got it all sorted. Yes, investing in your child’s name is a tricky one. Thanks for popping over from #teamIBOT Money Mummy

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Leanne Winter 23/08/2013 at 10:33 am

Hi Shelley, as usual good info. I’m ticking the boxes on most of those but the tax on kids earnings was a bit of a shock. Is that $417 per year or all up ever?

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Shelley Marsh 23/08/2013 at 5:12 pm

Hi Leanne, its $417 per financial year. Thanks Money Mummy

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Janet @ Redland City Living 23/08/2013 at 4:13 pm

Great tips though this is all quite a while ago for me – we got wills and life insurance sorted after Mr 19 was born. Can’t believe it was all so long ago!

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Shelley Marsh 23/08/2013 at 5:07 pm

Hi Janet! Yes time flies! My little one is about to turn 3 next week but in a flash she will be 19 too! They don’t stay babies for long at all! Money Mummy

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kim 27/08/2013 at 12:12 am

Oh the dreaded will … should I say no more – everything else is in control but the …

thanks for the reminder, kimx

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Shelley Marsh 27/08/2013 at 10:29 pm

Hi Kim! Yes it is quite surprising how many people don’t have a will. It’s just not something that anyone wants to think about and understandably so! Money Mummy

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Nic 04/09/2013 at 9:19 pm

Great tips! I didn’t know of the tax rates for having an account in your child’s name!
I still need to work on tip 1. and tip 2. as mine both need updating!
Visiting from DP blog Carnival. Nic @ Mums Take Five

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Shelley Marsh 05/09/2013 at 9:45 am

Thanks for visiting from the DP Blog Carnival! I am glad you liked my post 🙂 Money Mummy

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Emily 09/09/2013 at 2:59 pm

Great advice. I’d add to that first point, not just if your affairs are complex, but if your family’s complex too. Perhaps a parent has remarried and you have step-siblings, or an ex with kids of their own and kids together and… blah blah. Then, no matter how simple your affairs may seem, a Will is still very important!

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Shelley Marsh 10/09/2013 at 11:27 am

Hi Emily, yes I totally agree! Money Mummy

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Kate 12/09/2013 at 11:01 pm

I have been talking about writing a will for so long, I really must make it my number 1 priority!

Visiting from the DP Blog Carnival

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Shelley Marsh 13/09/2013 at 2:15 pm

Hi Kate, yes it is a tough one to think about but unfortunately it is necessary 🙂 Thanks for popping by! Money Mummy

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Hope 17/05/2014 at 2:33 pm

Brilliant article. I think one of the best things about working as a nanny is that I get a first hand look at what life is like in a busy family with kids. I definitely know 100% that for as much as I can control it, there will be no rushing into kids and instant family before we’re financially set up and secure.

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