Taking parental leave is a big deal – not only in terms of the enormous life change, but also the impact on your finances. Stephanie Pow of parental leave experts Crayon has been there, done that, and has some good advice on the financial pitfalls to avoid.
From working out what parental leave and entitlements you qualify for to shelling out cash for things like cots and pushchairs, there is a lot to think about when it comes to baby finances.
Stephanie Pow, founder of Crayon, which aims to “reduce financial stress in the moments that matter”, warns that as soon as you start thinking about family planning, you need to start financial planning too.
She shares the most significant mistakes she sees parents make.
Not researching entitlements early enough
It’s never too soon to start checking out what you are entitled to from the government – and this goes for your partner’s entitlements, if relevant, also.
“There are very strict rules, and they apply them to the letter of the law, so you want to make sure you know what those rules are,” Stephanie says.
There are requirements like how long you need to have worked for your employer before you’re eligible and the number of hours per week you need to have worked in a specific time frame in order to qualify. So make sure you school up on these.
Stephanie it’s important to factor these requirements in to any decisions you make around changing jobs or even the timing of having a second or subsequent child so that you don’t find yourself with any nasty surprises. You may find that you need to save more ahead of time to give you an adequate financial cushion.
Not checking out what your employer offers properly
More employers are offering extra support to their employees above and beyond what the government provides. This could include additional paid leave (to both primary carers and partners), enhancements to KiwiSaver contributions, or to how your annual leave is treated.
But it can vary hugely from one organisation to another, so make sure you know exactly what your company offers and what you need to do to qualify for it. Again, this is important information to factor in to decisions around switching jobs, moving from full to part-time work, or the timing of subsequent children.
Crayon runs the NZ Parental Leave Register, which is the only source of verified employer parental leave policies in the country, so it is worth checking out. They also provide information and advice for prospective parents on their website.
Remember that employers can require 12 months of service to qualify for their benefits. And there can be clawbacks to those benefits if you don’t return to work.
Not preparing yourself mentally
It can be quite disconcerting for previously financially independent women to find themselves more dependent on someone else for money after having children.
“You feel a bit financially vulnerable. And regardless of how nice, generous or open your partner is about money, it’s just not a good feeling,” Stephanie says.
It’s vital to have a conversation with your partner about how your finances will work. Do you need to change the way your accounts are set up? Do you need more joint accounts? Do you need to make sure that each person gets an allowance?
Having those conversations means you can find out what you both need to have confidence in your joint finances.
Not budgeting properly
Stephanie says babies cost between $8,000 and $20,000 in the first year of their life. This includes things like childcare, formula if used, food, cots, pushchairs, and highchairs. Then there’s the nappies, postnatal support such as pelvic floor physiotherapy, lactation support, sleep consultants and lost income. Stephanie says energy bills often go up between 20 and 30 percent as families are home more, running more heating and doing more laundry.
“What often happens is your income goes down when your expenses go up. So make sure you work through what that could look like, so you don’t end up being forced back to work before you want to,” Stephanie says.
Getting caught out by tax
Nearly 30 percent of people who take parental leave are sent tax bills by the Inland Revenue Department to correct the amount they have paid. And for some, this bill can be in the thousands of dollars, Stephanie says.
“So you’re getting a tax bill at a time that, frankly, you don’t have a lot of spare cash,” she says.
This can be caused by not paying secondary tax when receiving paid parental leave from an employer as well as the government, or being overpaid Working for Families tax credits if families end up earning more than they expected in a given year.
Not understanding how annual leave is calculated
Annual leave entitlements around parental leave can get complicated and it’s important to know that the value of your annual leave can drop after you’ve taken parental leave.
“We get people writing in saying ‘What happened? I came back from parental leave and took annual leave and got paid $6 an hour’.” Stephanie says.
So make sure you read up on how this works for you or check in with your Human Resources or payroll department.
By avoiding these pitfalls, you can help ensure you’re making the best financial decisions for you and your family.
Read more: <<12 painless tips to sort out your family finances >>
