When you are young and single, your main responsibility is to yourself. But when children arrive, me becomes we and that requires a new approach to your finances.
In the course of your life’s financial journey, one of the major turning points is the birth of a child. As your family grows so does household spending and financial decisions multiply.
With a baby or two on the horizon you may decide to upgrade to a bigger home, or extend the one you’re living in. The sleek urban car is also destined to be swapped for a family SUV.
We all know that children are priceless, but there is no getting around the fact that providing for a growing family is a major financial commitment.
Cost of supporting offspring
Depending on your family’s lifestyle, the number of children you have, the schools and universities they attend and the length of time they remain in the nest, you could be supporting one or more of your offspring for up to 30 years.
According to the most recent AMP NATSEM Cost of Kids report, the cost of raising two children from birth until they leave home is $812,000 for the average middle-income Australian household. High income families will outlay $1.1 million, largely due to the higher cost of private education.
While most families muddle along, without planning their options may be limited. With a little thought and preparation, you can ease the financial strain and expand your family’s choices with these simple actions.
Invest for the future.
The sooner you start saving for major expenses such as school and university fees the better. Try putting aside small amounts regularly from the time each of your children is born. That way, you are less likely to need to borrow money down the track or compromise on quality.
It’s best to start investing as early as you can. The longer your time horizon, the greater the opportunity to invest in growth assets such as shares and property.
Shares produce higher returns than cash in the bank over the long run, which means you will have more in the kitty to pay for major expenses as the kids get older.
Boost your superannuation.
It’s tempting to put super on the back burner while you focus on providing for your family. That’s understandable. But if the opportunity arises to make extra contributions, it can make a big difference to your lifestyle once the kids leave home and you retire.
If your employer offers salary sacrifice, consider topping up your retirement savings to take advantage of super’s concessional rates of taxation. Or if you receive a windfall, why not use some of it to make a one-off super contribution up to your age-based limit.
This is especially the case if one or both of you are planning to take time out of the workforce to care for your children. Extra contributions may be needed to make sure you are not disadvantaged when it comes time to retire.
Insure your life and livelihood.
It’s natural to want to protect your family, and that includes financial protection against unforseen events.
You may already have cover for your car, your house and your health. But now that kids are in the picture, what would happen if you or your partner were to have a serious accident or, through illness or injury, were unable to work for an extended period?
The need for various forms of life insurance peaks while your children are dependent and living expenses are at their highest. The main forms of life insurance to consider are:
- Death, which pays a lump sum to protect your family’s lifestyle if you die or have a terminal illness;
- Total and permanent disablement (TPD), which pays a lump sum to replace lost income if you are permanently unable to work;
- Trauma, which pays a lump sum if you have a specific injury or illness;
- Income protection, which pays a monthly benefit to help replace lost income if you are unable to work due to temporary illness or disablement.
There’s a lot to think about when you start a family, and that includes having a financial plan that will cover your family’s current and future needs.