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In one month and 5 days (and 18 hours, according to my overzealous planning app,) I am getting married. I’m going through this for the second time and, if I’m honest, I have found the financial side of things more stressful the second time around. This is quite probably because this time round I have two young children, am buying a house at the same time, and there’s that whole ‘cost of living crisis' going on as well.
There is no ‘one right way’ to plan for your big day or bundle of joy, but that’s not to say it isn’t worth discussing the financial implications or seeking advice.
Buying a house, getting married or having a child are all incredibly exciting and rewarding moments that can have a huge financial impact as well.
If you are going it solo, you only have yourself to manage. If you have a significant other in the picture, this may be the first time you and your significant other have had to discuss finances.
Increasingly I’m finding clients and colleagues who, despite living together and being in a committed relationship, have chosen not to join bank accounts with their partner. This enables people to continue managing their finances individually, however it can mean when it comes to saving for a significant joint event, you’re not actually on the same page.
When it comes to planning for a milestone there are several financial areas to consider, I’m going to break them into three broad categories of Logistics, Risk Management and Future Planning.
How much are you going to spend, what will it be spent on and for the love of (insert preferred deity here) where is that money coming from? Did you know:
The average cost of a wedding in NZ is around $35,000.
The average house price is still a whopping $934,761 (even after the even after the recent cooling in the market)
The cost of raising a child – priceless. Or, if you really want to put a dollar figure on it, some sources suggest around $16,000 per year to raise a kid.
The above child-raising estimate does vary, depending on your childcare situation (this is the largest expense in the first few years) and how much you buy new, versus second-hand.
Important to note ladies is that one major consideration for women is that the above figure doesn’t factor in your lost income while on parental leave, and your lost KiwiSaver contributions from your employer and the government on top of that.
Start with some basics – try to nail down, as accurately as possible, how much you’re going to need. That might mean looking at house prices in your area and working out what your 10% or 20% deposit needs to be, or it could be building a detailed budget with your wedding ‘must-haves’ and ‘Wishlist’.
The second part of the equation is knowing your timeframe, and whether it’s flexible or not. (Hint; if you’re already pregnant that’s a pretty non-negotiable timeframe to work to!)
The third part is to know what your household surplus is, and if any outside money is coming in then from whom and when. If your parents are gifting you a deposit have a casual but upfront conversation early on, about what that means in dollar figures and whether there are any strings attached.
Create an account specifically for your milestone and set up an automatic payment into it as soon as possible, either based on the amount that will get you to your goal, or the amount you can spare from your day-to-day spending. If the amount you can save each month, multiplied by the months you have until D-Day, is way off your goal, you’re going to need to review how realistic the goal is and make some compromises.
With wedding planning, keep track of the costs as you commit to vendors. Remember that the biggest expense for a wedding is usually the food and drink (which is a cost per head), so when creating the guestlist bear in mind that each person could be costing you $200 for the pleasure of their company on the day.
With kids there can be a lot of upfront costs, so items that can be sourced second hand are ideal. The main advice here is talk to others – talk to other mums about what is and isn’t worthwhile, talk to your partner about how long you’ll each take off work and what changes to make in your budget. Even talk to your midwife who will likely know about any community resources, such as Bellyful which can help in those first few weeks.
When trying to budget for a first home, consider all possible sources of income, such as flatmates, (some banks have no limit on the boarder income you can use for servicing, within reason) working for families, child support, gifting from family, and first home grants. The key here is to speak with an adviser, as not all banks will accept all forms of income. An adviser can help you avoid a soul crushing decline, or pinpoint exactly what needs to change to get a “Yes”.
This encompasses both insurance and also legal aspects. While the factors such as when to set up a Trust or a Relationship Property Agreement are not strictly speaking ‘financial advice’, they do serve an important purpose in protecting your assets, and any decent financial adviser should be able to at least raise the topic and refer you to the right person.
Insurances are probably the least sexy part of financial advice – however they play a key role in protecting your most important asset; yourself. Whether buying a home or having a baby, your exposure to risk has increased. You may need anything from income protection to ensure that you can keep paying your mortgage if you are too sick to work, to life insurance so that you are covered if the worst should happen, to adding your new baby to your health cover so they have access to private health care if they ever need it. A comprehensive risk management strategy looks at the risks, your ability to manage those yourself (savings, family etc) and then what needs to be outsourced to an insurance provider.
You may have noticed that unlike a large swathe of ‘advice for women’ out there, my focus is often on areas other than how to invest. However, this is where that investment strategy comes in to play, as it relates to the three milestones above.
Firstly, if you are buying a first home and using your KiwiSaver please remember to do this after settlement: Review and change your fund (which was probably conservative) to one more suited for the long term.
Also, make sure to check the rules around using your KiwiSaver for a house deposit.
If your first property purchase was an investment property (which you would have bought yourself, as you cannot use KiwiSaver on investment property), you need to be aware that you cannot use your KiwiSaver for your second purchase, even if it will be owner-occupied and thought of as “your first home.” KiwiSaver can only be used for a house deposit on your first property purchase, which must be owner-occupied. If this is the case, and you cannot use your KiwiSaver for the house deposit, make sure your KiwiSaver is set up for the long term. Talk to your adviser to get those settings correct.
On the flip side, some people who have never used KiwiSaver to buy a house and then have a relationship breakdown, may be able to access it to purchase on their own. Again, best to check out the Kainga Ora website for the rules and talk to your adviser about this one.
Any one of these milestones is of course also a fantastic opportunity to create a financial plan. Whether you do it formally with a professional, or on your own, a financial plan allows you to plot the course of the future, with other expected milestones and significant financial considerations.
If, for example you are planning a wedding and find that you and your partner have different approaches to the overall budget, (e.g., you were thinking cheap and cheerful, they were thinking of arriving by helicopter), then I would strongly recommend having some conversations about money in general early. Work out how you will handle both the money and the conversations around it in your future together. This is important, as disagreements over money are widely considered to be one of the leading causes of divorce, it’s well worth starting the conversations before you say “I Do”.
On a cheerier note, when it comes to having babies we know they are expensive little munchkins but a bit of forward planning can make a big difference in the future. With the cost of tertiary education, buying a home and even travel, many parents would love to help their kids financially with their own milestones. A plan can help you start working towards those goals early.
These life events are hugely emotional; exciting, terrifying and exhausting. Fear of the financial side of these will only add stress to what is an otherwise joyful time. If you’re not sure where to start, or you’re not comfortable starting these conversations with your partner or family, come have a chat to me first and we can make a plan together.
Elizabeth.
Elizabeth Tsikanovski (FSP693611) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see Elizabeth’s disclosure statement on our website.
This blog is the latest instalment of What Would She Do? A column written for Women, by Women.
Elizabeth is the author of a monthly blog What Would She Do? A column for women, by women.
Read more about Elizabeth and her blog