Stef, James & Theo
Stef, James and Theo are expecting an addition to their family in just a few months.
Things are as busy as you would expect with 2 working parents, and an active 3 year old in nearby long day care.
When Theo came along (their first born, now 3), both Stef and James had just started jobs and had no employee entitlements to consider. Also - the whole story around government help was a new one, and got somewhat lost in the fog of a newborn. In their words - they got through, but this time they want to be (and need to be) a lot more organised.
This time around, James has an 8 page “Parental Leave and Related Entitlements Policy” to consider - outlining very specifically a range of entitlements and conditions that James needs to carefully consider and plan for. It’s a policy that his company is proud to offer - and rightly so - it is inclusive in it’s scope and generous compared to what has been on offer in the past. It’s an extremely attractive offer for mid-career employees starting families.
They are also determined to manage their government entitlements more efficiently, and want to plan their childcare costs - they will soon have 2 children in long day care - and this will have a significant impact on their family budget
What they were planning
When we first spoke, they were making plans for James to take his leave about 6 months after the birth, allowing Stef to ease back to work, and allow James some special time with the baby.
In terms of managing their childcare costs - they had some awareness of government plans to remove the benefit cap, and were counting on the government plan to offer extra childcare cost support to families with more than one child in care age 5 and under - due to start in July 2022.
Normally, their childcare help would “cap out” in about March, meaning their out of pocket childcare costs shoot up for the last quarter of the financial year. Luckily for them, the government announced they were bringing this change forward during our discussions - a big win for their family budget.
Having said this - they hadn’t nailed down the actual costs and cashflows, and throw in a property purchase, and you have the basis of some pretty high financial uncertainty alongside a new baby.
How we helped
By taking a deep dive into James and Stef’s situation and objectives, we were able to step out the cashflows, taking into account government and employer entitlements, forecast childcare costs, and plan leave.
Importantly, we clarified:
Eligibility for a range of government payments - how much to expect, and when to apply.
Understand and plan for expected childcare costs - taking into account expected childcare subsidy percentage, the childcare daily rates of their chosen provider, benefit caps, and changes to the Child Care Subsidy system allowing a 30% higher subsidy for the second child under 6 in care.
A plan for leave - this became more complex when taking into account James entitlements, and Stef’s objective to return 4 days per week. We worked out that James could allocate 48 days of primary carer leave over 12 weeks, with each Friday (Stef’s day off), taken as annual leave. This made for this incredibly important phase of leave, where dad gets to have his own time with the baby, and support mum getting back to work. This plan also mean’t that for 12 weeks, this family has a 3 day weekend together - before getting back to the “new normal” of having 2 kids in childcare and mum and dad working.
An estimate of annual household income over 3 financial years - taking into account leave taken, payments received, and the expected out-of-pocket childcare costs. Because amongst all of this there are still bills, mortgages and financial surprises!
Clarification on private health rebates and levies - by understanding their treatment based on household income, James and Stef are able to make a more informed decision on the out-of-pocket cost of private health insurance (which - as it turns out, will be very low given their income position).
Other things they learned
We were anticipating the challenge of the benefit cap to really hit cashflows around the time when the baby reached about 3 months - the announcement that the government had brought forward the changes makes a huge impact on family cashflows. The extra support for the second child (an increase in Child Care Subsidy % of 30%, up to 95%) was not actually as good as it sounded in the government announcements. Having said this, the fact that this extra support carried along as long as Theo was in childcare (which includes after school care until he is 6 years old), was good news to Stef and James.
We were also looking for an overall lower family income during the periods of leave to have some impact on childcare subsidy - what we found was that there was no change - this is due to the way the income test works.
Stef and James asked for clarity around their tax treatment/incentives for taking out private health insurance. Given clarity around family income, we worked out how much their Medicare Levy Surcharge, combined with a government rebate on health insurance premium would offset their private health insurance costs. To the extent that for less than $200 a year they could significantly upgrade their choices when faced with a health event.
In terms of government payments, we clarified that they could be paid concurrently with any employer leave payments, allowing Stef and James to bank payments as soon as they could, to offset their mortgage. This works as long as they are in a good position to plan their spending based on expected income - which is of course what we are helping them find out. Also we made sure Stef and James were clear on the application process, and the timing of applying - by getting to work 3 months before baby is born, application and payment is managed smoothly.
Also of interest was that Dad and Partner pay, while potentially an attractive payment, really was of no benefit to James, as he would have to interrupt cashflow from his company to be eligible. At the minimum, it is a bit of insurance - as he could claim it up to 50 weeks after the birth of the baby if his employment situation changes.
Finally - what is very interesting is that James’ parental leave package serves Stef’s employer well, as when Stef returns to work, it is her partner looking after the baby, fully funded, and without the extra cost of childcare.
Don’t read too much into this
Well, do read about all the detail that Stef and James need to get on top of to make reliable plans, but don’t expect it will be the same for you. Every family is different, and their outcome, threats and opportunities are unique.
There is a lot of number crunching going on in the background. Government rules have their quirks, application challenges and time limits.
We can alleviate much of the financial confusion with the arrival of a baby, and help families and employers get better, more planned outcomes.