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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.

20/08/2013 37 comments
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Top Tax Tips

No one likes tax time, well maybe except accountants (they love that sort of thing), so I have decided to put together my top tax tips to help you get through tax time as painlessly as possible.   Here goes:

(1)    My number one golden rule when it comes to tax is that if the Taxman owes me money, (think refund), I get my tax done as quickly as possible.  If it is likely that I owe the Taxman, for example I have made extra cash through saving or investments, I don’t submit my return until the 31st of October if I am doing it myself.  If you use a tax agent, you can push it out even further.  Most tax agents have an extension until the 31st of May, but confirm with your agent to be sure.

(2)    Consider using the ATO’s online tax preparation and lodgement service called e-tax.  It’s free and scarily enough, you can get a lot of your data prefilled in from the tax departments records.  This means that for a lot of things such as your income from your employer, centrelink payments and bank interest, you just have to check that it is correct.  It means that relatively simple returns are pretty easy to handle yourself and most refunds through e-tax are issued within 12 business days.  Check out their website at http://www.ato.gov.au/Individuals/Lodging-your-tax-return/E-tax/ to decide whether it is for you.

(3)    Make sure you are on top of what deductions you can claim.  The ATO outlines specific deductions for many occupations including nurses, hairdressers, teachers and even “Adult industry workers” so check out the fact sheets at http://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Deductions-for-specific-industries-and-occupations/ and make sure you are not missing out on any deductions.

(4)    The  ATO considers electronic records to be just as valid as paper ones.  This is true of both documents that were electronic to start with (for example receipts for online purchases) and documents which you have originally received in paper form. This means that you can now scan all your relevant paper receipts and throw away the original.  Just make sure you also keep an additional electronic back up :-).

(5)    Car usage is the biggest single deduction that you may be able to claim as an employee.  Travel to work is generally not allowable, but you can claim the cost of using the private motor vehicle if it is being used for work purposes such as travel between work locations visiting clients/customers etc.  If you want to make a claim the best way is to keep a log book to substantiate your claim.

(6)    If you have a flexible employer who allows you to work from home you may be able to claim this through your tax.  To cover expenses such as heating, cooling, lighting and depreciation of general office furniture, you can either claim your actual expenses (but you will need to keep a diary of those expenses and hours worked) or you can claim a fixed rate of 0.34c per hour worked.  If you use the fixed rate, you will need to keep a diary to record the amount of time you use your home office for work purposes.  Expenses such as stationary, telephone, internet and computers are claimed separately.

(7)    Make sure that any investments or savings you have are in the name of the spouse paying the lowest tax rate.  This is because dividends and interest are taxed at your marginal tax rate.  Watch out for investments in the names of your children as they may attract punitive tax rates as explained in my previous post “Three things you really need to know when saving and investing for your child”

(8)    Click here to see the latest marginal tax rates.  You can now earn $18,200 before you have to start paying any tax.

If you liked this post, you might also like:

How To Teach Your Child About Money

10 Easy Ways To Save Money

How To Pay Off Your Mortgage Faster

Top Tips For Getting Rid Of Your Credit Card Debt


*Please note this is for your general information only and does not constitute financial or tax advice.

17/07/2013 8 comments
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After spending a cosy night on the couch with a glass of wine and Mr Swan on the telly, the budget turned out to be a bit of a non event.  As with most budgets most of the unpalatable stuff had already been leaked and interestingly there was none of the major vote grabbing hand outs that you would expect from a government facing an election in four months time.  The fastest summary I can give from a family point of view is, baby bonus scrapped, Medicare Levy up and wave good bye to your promised tax cuts.  Oh and if you are a smoker the cost of your cigarettes will increase too.  So here is the low down on some of the things I think you really need to know from the Budget….

(1) Baby Bonus Scrapped

So let’s start with probably the most controversial policy change from a family point of view the scrapping of the baby bonus.  Under the previous scheme, stay-at-home mothers in families with incomes of up to $150,000 received a $5000 payment on the birth or adoption of their first child and $3000 for each subsequent child.  The scheme will now be changed to the much lower amounts of $2000 for the birth or adoption of a first child or each child in multiple births, and $1000 for second or subsequent children. Also, the threshold income below which you can qualify for the scheme will drop considerably to $101,000 gross income per couple from $150,000.  The threshold for a second baby will be about $112,000.  Under the new scheme, families will receive an initial payment of $500, with the rest to be paid in seven fortnightly instalments.  The old baby bonus scheme will be scrapped from March 1st, 2014.  So if you want to claim you had better get moving 🙂

(2) Minor Changes To Paid Parental Leave Means Better Access For Those Having Another Child

Under the current scheme women must work for 10 of the previous 13 months to qualify for the government’s paid parental leave. Post the Budget, parents can include time on the government-paid parental scheme as work if it occurs in the previous 13 months for a subsequent child.  This move broadens the definition of the work test and means that more women will be able to access government paid parental leave when they have another baby.  By the way, its handy to know that employer funded parental leave can already be included as part of the work test, where it occurs in the previous 13 months.

(3) Other Changes to Family Payments

The government will freeze the upper income test limit of $150,000 for the dependency tax offsets, Family Tax Benefit Part B, the Paid Parental Leave Scheme and Dad and Partner Pay for the next three years.  Also, those of you with teenagers the government will stop paying the Family Tax Benefit Part A at the end of the calendar year in which your teenager completes school. The government are also reducing the time in which families have to claim their Family Tax Benefit entitlement or Child Care Rebate from two years to one.  So it definitely pays to get on top of these things early and not wait too long or you might miss out!

(4) Kiss goodbye to your promised tax cuts

We had been promised tax cuts that were going to come into effect on the July 1 2015 but these are now no longer going to happen.  My understanding is they were to help out with the increase in costs associated with the Carbon Tax.  Supposedly the tax cuts have been deferred but that is most likely political speak for “never going to happen”.

(5) Medicare Levy increased from 1.5% to 2%

From July 1 2014 it is proposed that the Medicare levy increase from 1.5% to 2% to fund DisabilityCare, the Government’s national disability insurance scheme.  It is estimated that, on an income of $50,000 per year this increase will be an extra $250 in levy, on $75,000 it works out to be an extra $375 and on $100,000 per annum the increase adds an extra $500 to your Medicare Levy.  No doubt most will agree that the increase in the levy is going to an area in desperate need of funding and long over looked by both sides of the political spectrum.

Of course, there were many more things announced but I think the ones outlined above are some of the most important for Australian families.   As we are facing an election later this year, all of these changes are only proposed and if the coalition gain power it is highly likely that some of these measures will be changed.  I will keep you informed!

Happy Investing!

Money Mummy

* Please note this is for your general information only and does not constitute financial advice.

15/05/2013 2 comments
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