The research—and candid parents, if you ask them—will share that it is not unusual as a parent to feel completely overwhelmed. So it’s no surprise that there are many financial mistakes that parents make.
And while these five money tips below are what every new parent should follow, it’s not too late to take on some of them now even if your children are no longer babies.
1. Test drive living on one income before you have kids
For many parents, the decision to have children means that you transition from two incomes to one—at least for a time.
One of the best ways to transition smoothly is to test drive one-income living. Take one spouse’s income and for at least six months, deposit it directly into a separate savings account. Don’t touch that money even for emergencies. And make a note of how your spending has changed so that you’re comfortable that you can maintain a more conservative pattern of spending once your bub arrives.
Test driving also means that you will have a comfortable cash buffer, which will be handy as a new child means new expenses. The estimates are that an Australian family will spend $7000 to $10,000 a year raising a child.
2. Consider childcare costs as a family expense
Women will often say it’s not worth returning to work because childcare is so expensive.
This logic is flawed. First, it makes sense to consider childcare not as a mum’s expense but a family expense. Which means the expense is simply part of the household budget.
Secondly, there are significant long-term financial benefits of working: Leaving the workforce for five years to raise children is estimated to cost women 20 per cent of their lifetime earning potential.
3. Make sure you have personal insurance
Most people don’t think twice about insuring their car, their contents, their home. Yet they forget to insure their most valuable assets: Their life and their income.
What would you do if you or your partner became seriously ill, disabled or died? Could you live on a reduced income permanently? How would you earn income and look after the kids?
Work out how much and what type of life insurance you need—online calculators are a great start and it’s often best to seek help from a qualified adviser.
And don’t rely just on insurances through superannuation. While it’s often easy to get, and affordable, it may not be enough.
4. Keep contributing to super
While contributing to super is probably the last thing on your mind, it’s vital for your long-term financial wellbeing. As they say, on a plane, you need to put on your own oxygen mask first.
Did you know that if you earn taxable income, you can make super contributions and claim a tax deduction? And you may be eligible for your partner to make a spouse contribution and receive a tax offset.
5. Spend time and money on things you love
For all of us—and especially for parents—it’s important to ensure you can still enjoy some activities you love. Studies have found that after women became mothers, they enjoyed their leisure time more than before—which shouldn’t surprise us, as we have much less of it after our kids come along.
Spending time with your spouse is also essential for being a positive parent. Research shows that couples who spend more time enjoying leisure activities together before having a child are generally happier in the first year of their child’s life. So, do make sure you have date nights, maybe weekends away, to invest in your relationship. It will also benefit your kids as well!
If you like these tips and want to be savvy with your money, you’ll enjoy my book, The Joy of Money, co-authored with Julia Newbould. It’s designed to help you get on top of your finances so you can reduce money stress and enjoy loving and caring for your kids.
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