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Home >How To Prepare Financially Once You Find Out You’re Pregnant
How To Prepare Financially Once You Find Out You’re Pregnant
Once your head stops spinning at the news of becoming a parent, there are some important financial decisions you need to make to ensure your finances are in order when your little bundle of joy arrives.
Start by logging all your expenses for a week. You may get a shock to see where your money actually goes. From this log, identify those areas where you could trim some fat (e.g. entertainment and holiday expenses) and draw up a monthly budget that includes both essential expenditures and debt repayment commitments. Average out those bills that come on a quarterly basis.
After you’ve drawn up your budget and identified areas where you can make cut backs, one cashflow management strategy you might consider is setting up separate bank accounts - one for savings and the other for household bills and debt repayments.
The purpose of the savings account is to ensure you have sufficient funds for emergencies and unexpected expenses that might pop up once the baby arrives. Try to set aside 10% of your total monthly income to automatically transfer to this account once you’ve been paid. The Baby Bonus, tax return refunds, asset sales (do you need that second car?) and family ‘donations’ can be used to push the balance along.
If you have a mortgage with interest offset account facility, you might use this as an alternative savings option. Savings can be directed into this account while you are pregnant and offset daily against your loan amount.
You’ll now have a pretty good idea of what your monthly bills amount to. Again, as soon as you’re paid, automatically transfer funds to a separate bank account for household bills. This will ensure you always have money to pay bills and avoid using credit cards.
After deployment of your funds for day-to-day living expenses and transfers to your savings and household bills accounts, use leftover funds to pay down non-deductible debts, such as credit cards and personal loans. If you’re able to, your goal should be to pay off your credit cards prior to the birth. If this isn’t possible, consider consolidating your credit card debts to a new card with an interest free period and use the funds that you save on interest over this period to repay the outstanding balance. If you’re unable to consolidate, shift your credit card debts from the highest to the lowest interest option. Finally, train yourself to use your debit cards instead.
If you’re in over your head, try consolidating your credit card debts to a personal loan in order to reduce interest payments. Ensure you understand exactly what you’re getting into with regard to the term of the loan and interest rate. Remember that interest rates may rise, which would increase your monthly repayments.
Something else to consider if you have a mortgage is moving to interest only repayments. This will free up cashflow for repayment of those debts that are attracting a higher rate of interest. However, beware of any fees or charges you may incur for switching. Interest only loans carry higher risks, as you are not building equity in the property.
Repayment holidays and prepayment of your mortgage are other options that you might consider if part of your loan package.
Insurances are another area that needs to be considered. Personal risk insurances, such as life and income protection, should be put in place to safeguard your family and assets. It’s best to consult an experienced financial planner for advice relating to your personal insurance needs. General insurances, such as home and contents insurance should also be in place to protect your property. And finally, private health insurance is important to assist with medical expenses for your family, which can quickly become costly if you or your children become ill. All providers offer family pack
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