How to financially plan for a baby

How to financially plan for a baby

While many people are concerned about saving up for a home loan deposit, a lot of young couples will also be considering planning a family. While there are relationship and emotional consequences to think of, financial planning should also be a chief consideration at this juncture.

Effective budgeting and saving could alleviate a lot of financial pressure, which could otherwise add additional stress to your relationship.

1. Time off work

Are you prepared for time off work? Checking your leave entitlements is one of the first things you should do when planning to have a child. Once you know what you’re entitled to, you can plan other savings or possible assistance around this.

Remember, if you take leave that isn’t paid, you won’t have an income over that period. Padding your savings account now could be a very good move. If you are pretty close to needing to take your leave, you should talk to your employer. According to the Department of Human Services, you’ll need to provide your boss with 10 weeks’ written notice.

2. Things for baby

Children are expensive. Raising two kids in a typical middle-income family will cost you around $812,000 according to research by AMP conducted in 2013. So, it’s important to save money where you can, or you may find your credit card debt getting away from you.

Talk to families that have recently had children and see if they can save some items for you to use. Take advantage of your baby shower and request specific items you’ll need, or at least tell guests what you don’t need. 

3. Things for you

Being an expectant parent means a shift in priorities and a change in lifestyle. There will be foods, supplements and clothing that you will need that have to be paid for somehow. Once you have investigated what you will need over the next year or so — and found the most affordable options — start making a budget.

A great way to plan for this extra expense is to increase your outgoings now. Try making extra payments on your car loan or credit. Not only does this mean you’ll have smaller interest payments in the future, it will also test your financially solvency in a practical way.

For example, let’s say you’ve created a budget and, after considering loss of income and increased expenses, you find yourself $200 down per week on your current available funds. Stretching yourself by $200 now would be a very good indicator of whether or not this is a financially feasible move at the moment. Don’t waste that money though — put it to good use.

4. Accepting help

Planning for a baby is critical to starting your family. This involves a lot of independence and self-reliance. But, it’s also an opportunity for families to bond and for friends to band together. It’s important at this stage of life to not confuse being stubborn with independence.

While you may not want to rely on family for help, accepting their kind gestures will not only keep you close at this time, but will save your credit card some serious stress. As mentioned before, it is quite likely that you will take unpaid time off work at some point. To make up for this, ensure you take advantage of every benefit available to you. If your employer offers some extra support for those on parental leave, don’t turn it down — every bit helps.

The same goes for government services. There are many out there, and while you might not qualify for all of them, you may be able to receive a couple — which could make a huge difference.

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How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

Can you have multiple ING savings accounts?

Yes, you can open up to nine accounts with ING at any particular time. If you’re saving money for various goals, such as buying a car or taking a holiday, you can name each of your multiple ING savings accounts differently.

To get a Savings Maximiser account, you’ll need to deposit more than $1000 every month and make at least five additional purchases. If you also want to grow your savings, from 1st March 2021, you can earn up to 1.35 per cent per annum variable interest on one account with a balance of up to $100,000 when you also maintain an Orange Everyday account.

With ING, multiple savings accounts can help keep track of all your savings goals. All the accounts offer flexible withdrawals where you can withdraw as low or as high as you want without impacting your earning interest rate. However, you can only earn the bonus interest on one account. To apply for a Savings Maximiser account, you can visit ingdirect.com.au.