When you have kids, your whole approach to spending needs to be altered considerably. From food to clothes and healthcare to pre-school and education fees, raising a family brings with it a vast array of expenses which you wouldn’t have previously needed to make. Aside from the direct expenditure required for the benefit of your children, there’s also the loss of income from needing to take maternity leave. Plus, while it may seem a world away at first, it’s worth saving from an early stage so that you can cover their university tuition if they wish to progress to this level of education in their young adult years.
The first box you must tick is to ensure that you have enough money in reserve to cover the additional expenses required by parenthood. If you and your partner are both working, you should always aim to have at least three months’ worth of wages in the bank as a buffer. If one only of you has full-time employment, ideally there will be six months’ wages in reserve. Also, putting away a small amount each month (maybe $100 if you can afford to do do) will lead to a substantial later-in-life fund building up for utilizing when it is needed.
Understandably, many young parents will make misjudgements in budgeting for their children. A common pitfall is to take out an excessive mortgage with your bank, who will then catch you for ridiculously high interest payments. Don’t put anything more than 30% of your family’s income towards housing costs. When it comes to putting money aside for your children’s student funds, lodge it in an educational savings account so that you might qualify for tax breaks rather than just leaving it in a regular bank account.
The following infographic from All Finance Tax offers prudent, sensible advice to parents with young families on how they can manage their budgets effectively and provide for their children as comfortably as possible.