Starting a family is an exciting time, there’s a lot to look forward to and a seemingly endless amount of advice online and from friends and family on how everything is going to change. You will probably be reading books like How to Raise a Smart and Happy Child, No Regrets Parenting: Turning Long Days and Short Years into Cherished Moments with Your Kids and Simplicity Parenting: Using the Extraordinary Power of Less to Raise Calmer, Happier, and More Secure Kids!
But what does it mean for your finances? Certainly there is more to spend money on like kids clothes, the nursery, books and toys, but what about the bigger picture? How do you ensure your financial game plan doesn’t go off the rails when you bring the little cherished one/s into this world of ours?
Here are the top 5 things every new parent should reconsider in their financial game plan:
- Budget, budget, budget: I know, you have a budget, or you hate budgets. I hate budgets. But could you imagine investing your hard earned dollars into, say, the Commonwealth Bank and then finding out the new CEO has decided that the business will no longer worry about having a budget. Their new plan is to just spend what and when they need, and let nature take its course with the profit number at the end of the year? Personal budgets are just as important for you as they are for the Commonwealth Bank of Australia, especially when leave without pay may be required, or part time work, changing your income in a significant way. The good news is there’s now lots of software that can make keeping a budget simple, and importantly accurate. You really do need to know where your money goes (if only I had a dollar for every time I’ve heard a new client say “We just don’t know where all our money goes!). Now you can plan your spending and work hard to ensure you earn more than you spend!
- Protect your new family: This should probably be number one. Once your new DNA miracle arrives you will quickly realise you have to start considering the needs of someone else above your own. It usually happens the first time one of your friends texts to say let’s meet for a coffee? You grab the car keys, and rush out the door just as you remember your 2 month old is asleep in the next room and your partner is doing the grocery shopping. You also need to consider that if you lose the ability to work it will not only affect you, it will dramatically change the course of your child’s life. Unless you were smart enough to protect yourself. Life insurance can be a dirty word for some, but it’s never more important than when you have a young family, and quite likely a mortgage to go with it. Get some advice and you will feel all grown up!
- What happens if I die?: Okay, so whilst we all know we are mortal, we generally don’t like to think or talk about death, particularly when we are more focussed on the birth and life is generally good. But now that your family is +1, you are carefully budgeting and you have life insurance in place, you need to think about how to look after your family if the worst happens. The first issue is who will be the guardian of your child if both parents are deceased? The guardian responsible for providing care, and may also manage property of for the child. Thought should be given to protecting children from future relationships, bankruptcy and tax. This is done via the will and in conjunction with your solicitor. There are enormous benefits in having a professionally prepared estate plan, and importantly these documents rarely need to be updated. They should however be reviewed on a regular basis.
- Education: We spend a lot of our time worrying about money. As a parent you will also spend a lot of time worrying about your children, including their education, because at the end of the day we all hope our kids don’t have to worry about money as much as we do! Providing an education is one of the most common aspirations we hear from young parents, but paying for it can be a challenge particularly if private school is what you are hoping to fund, or a University education. It’s best to plan earlier rather than later, particularly enrolling children for private school, and then determining a plan to put funds away to meet the costs in the future, or at least some of them.
- Prioritise your spending: With so much marketing these days combined with emotion and impulse we can sometimes find ourselves making financial decisions that we regret in the future. They can be small incidental expenses like takeaway food (which doesn’t help our waistlines either), to larger items like the latest curved 3D UDH OLED LED television or the V8 Commodore you’ve always wanted. It’s important to think about the longer term impact of our financial decisions, and never ever make impulse decisions. Always take enough time to re-consider whether you really need a new TV, and is it more important than the holiday you want to take next year or having some money to put away to invest? Being careful with your money means you will avoid having that troublesome credit card debt at the same time your spouse wants to take 6 months leave without pay to look after your new baby. Spend your money on what is truly important to you (perhaps its travel with your family in the future, or education for your career) which will ensure a brighter financial future.