Financial family planning is perhaps the less ‘sexy’ side of starting a family, but it’s really critical if you want to raise a happy one.
Your life changes in a big way when you have kids. Sleep becomes a luxury, diapers 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. You need to make sacrifices for your little ones and start planning for their future, as well as yours.
I remember having the same cheap cane lounge and dining furniture for all of our kids’ first steps. It was just part of starting a family of six on a cadet journalist’s wage.
So, with the benefit of hindsight, here are some smart financial family planning steps to take when you’re starting out.
1. 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. True, but that doesn’t mean you have to be home-bound all the time.
Spend some time making a budget that factors in your new family’s everyday expenses and household essentials. This will involve adjustments to your old lifestyle and it can be a bit of a shock. On the upside, it will ensure you recognise 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.
2. Review your insurances
While it may seem like an unnecessary expense, insurance protects you and your loved ones financially if something goes wrong. So, it should definitely be one of the steps in your financial family planning.
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 crisis happens.
As a general rule, you need enough insurance to support your family, cover debts and provide for ongoing care if you die or become incapacitated.
3. 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 pass in the event of your death. You’ll also need to name 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.
WATCH: Kylie Macdonald talks us through estate planning.
4. Build an emergency fund
Setting up your will and adequate insurances 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 expected health bill or career change.
Ideally this will be six months’ worth of living expenses to cover your bases, but whatever you have now, the most important things is to start adding to it today.
5. Set up a savings account
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, spending some time financial family planning will to put you in the best position for a bright future.