Balancing your Assets with a Family
Your life changes in a big way when you have kids. Sleep becomes a luxury, nappies a daily ritual and seeing your children grow each day gives you more joy than you ever imagined possible.
Alongside these daily ups and downs come some pretty big financial changes too, as you make sacrifices for your little ones and start planning for their future, as well as yours.
We recommend having the same cheap cane lounge and dining furniture for all of our kids’ first steps, which was just part of starting a family of six on a cadet journalist’s wage.
So with the benefit of hindsight, these are some smart financial steps to take when you have kids.
Budget for a more modest lifestyle
You probably don’t need to be told that your free and easy weekends are over for the time being, but that doesn’t mean you have to be housebound.
Spend some time making a budget that factors in your new family’s everyday expenses and household essentials, which will involve adjustments to your old lifestyle. This can be a bit of a shock, but will ensure you recognize any shortfalls before they become big problems.
Then see how you can arrange social and family engagements around a tighter budget, because mental health is just as important as financial health in a young family.
Review your insurance
While it may seem like an unnecessary expense, insurance protects you and your loved ones financially if something goes wrong.
So go through your insurance policies, including any held within your super, and ensure there is adequate life, income protection, trauma, health and home insurance to protect your family if a crises happens.
As a general rule, you need enough insurance to support your family, cover debts and provide for care if you die or you become incapacitated.
Get your estate in order
Updating your will is crucial when you become a parent, or if you don’t have one, then it’s the perfect time to tick it off your to do list.
One of the major decisions is naming a guardian for your child, but it also involves dictating where your assets will go in the event of your death and naming an executor to administer the will. While it’s possible to buy do-it-yourself will kits professional help will ensure that your will is legally binding and your wishes will be carried out as intended.
A lot of people say “we’ll just leave everything to our partner”, but what if both parents die together?
Having kids means a bit more thought needs to go into your estate planning.
Build an emergency fund
Setting up your will and adequate insurance are both essential to guard against big, unexpected events. However, it’s also important to be prepared for the smaller financial headaches that life throws up too.
So start setting aside some money in an emergency fund. This is money that can be easily accessed in a financial emergency, like your car breaking down, an unexpected health bill or career change.
Ideally this will be six month’s worth of living expenses to cover bases, but whatever you have now, the most important thing is to start adding to it today.
Setting your kids up with the opportunities you want them to have starts the day they are born. And there’s no bigger help in funding their future education, sporting or social pursuits than compound interest.
So try to factor a small deposit into your family budget that goes into an account for your kids to access later.
Then, rather than asking for baby toys or bibs for their early birthdays, you can ask your family to chip into their little future fund instead.
Ticking this over will quickly add up. Say you start with $500 and add $20 a week, at an interest rate of 4 per cent; it will grow to $28,300 by the time they turn 18.
If you’re starting a new family, spend some time making these financial changes to put your family in the best position for a bright future.
Teach your Children Good Money Habits
Once you’ve organized your own finances to cope with having kids, don’t forget to pass on good lessons as they grow up.
- Start early
The earlier you start the better.
When your kids are pre-school age begin explaining what money is and show them the various coins.
Kids learn about money observing their parents. Keep this in mind and try to set a good example.
- Pay pocket money
We reckon pocket money is vital to teach your children good financial habits.
When to start paying an allowance is an individual decision, as children’s maturity and understanding varies greatly. We started paying pocket money when they began school. By then they were ready to take on some household jobs in return.
- Encourage saving
Children can start saving as soon as they receive pocket money. Sit down and explain to them that saving is where you put money away each week to buy something you want.
- Open a bank account
After your child gets the hang of saving, it’s time to open a savings account. Most banks have children’s accounts and offer discounts for full-time students.
- Inspire teenagers to invest
When your kids get to high school, give them more freedom to manage their own money, particularly when they begin a part-time job. Talk to them about setting financial goals and saving. Explain how they can increase their money by earning returns on their investments.
From: MONEYSAVERHQ couriermail.com.au 7/9/15
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