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Your guide to financially planning for a family

When starting a family, future parents make plans for the nursery, get expert medical advice, buy the required baby paraphernalia and sort out their leave entitlements.

However, what many fail to do is organise their finances for the next 20-something years of child-rearing. With one partner out of the workforce for an extended period, increased expenditures and less spare time, parents are usually hit by the enormity of the expenses parenthood brings.

Parents need to consider the costs associated with:

  • Food and housing
  • Recreation
  • Childcare costs
  • Clothing
  • Transport, food and power
  • Furnishing and equipment

These costs tend to increase the older the child gets which is why financial planning for a family is essential before (and after) having kids.

In this article, we explain the costs of raising a family and provide a list of items you will need to consider before having a child. This will help better manage the costs of child-rearing and set you up for future success.

How much does it cost to raise a family?

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According to the latest report from the Australian Institute of Family Studies (AIFS), child-rearing costs are on the rise.

The 2018 report estimated that child-rearing costs sit between $159,120 and $548,500 over 18 years (per child). On the lower end of the scale, the AIFS found it would cost low-paid families $340 a week to raise two children — that’s $8,840 every year or $159,120 for 18 years per child.

An earlier report from the University of Canberra, however, suggested the cost of raising two children actually ranges from $474,000 to $1,097,000 over the course of their childhood. For one child, that’s an estimate of $13,166 to $30,472 every year or $237,000 to $548,500 over 18 years.

The report also found the costs associated with raising two children had increased 50% between 2007 and 2012 while household income had only increased by 25%. This indicates that the costs associated with child-rearing are growing at twice the rate of average incomes, putting significant financial pressure on families.

Overall, the total costs of raising children are affected by household income and location.

Households with low, medium and high income make different decisions about education, childcare and extra-curricular activities. These decisions explain the cost divide between $474,000 for low-income families to $1,097,000 for high-income families.

Likewise, location affects the costs of child-rearing.

Those living in Sydney or Melbourne were found to have higher child-raising costs driven by the cost of education in these areas. Overwhelmingly, however, the biggest costs of child-raising are transport, food, recreation and depending on income level, education.

Things to consider before having children:

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For many parents, raising children will be one of the largest financial investments they will ever make, which is why it is important to consider your family’s financial planning before parenthood (if possible).

Retirement, investment and basic living expenses also need to be considered for the future financial security of the parents once the children have left home. Here are just a few things to consider in advance:

  • Pre Baby Planning/Planning Ahead
    If you’re planning on having kids in the future, start saving now! Put money aside for the baby’s nursery and the loss of income if one parent needs to take time off work. Consider what your childcare requirements will be and how long you can sustain your mortgage on one income when estimating how much money you should save in advance.
  • Education
    Before having kids, it’s time to invest in yourself. Educating yourself earlier will help create better employment opportunities in the future which can have a positive impact on future earning potential.
  • Family Size
    Having a large family is lovely but you will need to consider if you can financially provide for them the bigger your family gets. More children equals more responsibility and higher costs from sport, schooling and health care. The costs for larger families tend to add up quickly.
  • Think Strategically About Your Future Home
    Transport costs were listed as one of the highest child raising expenditures. You will need to think strategically about where your family home is located and its proximity to schools, family and extra-curricular activities, as this could have a major impact on the family budget. Also, if you buy a house that is appropriate for the size of your family without the need to upgrade, you can minimise property translation costs like stamp duty.

Things to consider after having children:

young family scaled
Image: Pexels
  • Cash Flow and Budgeting
    Pay close attention to where your money goes. Set budgets and stick to them for food and recreation expenditures. Being smart at the supermarket can save you thousands over the lifetime of your children.
  • Pre-Retirement Planning
    Many couples can get caught up in the day-to-day of child-rearing but it is still important that money is put aside for the long term. Planning for retirement is still an important aspect of the family budget during the child-rearing years.
  • Family Protection (Insurance)
    Have you considered what would happen to your family if something happened to you? With dependents, it is important that you are appropriately insured so your family can still pay the mortgage and put food on the table in the event of injury, illness or death.
  • Estate Planning
    Having a will is an important step in your estate planning – however, once you have children, it becomes even more important as it can detail your wishes for the care of your children after your death. It can detail provisions made for their care and how it is to be funded.
  • Future Fund
    If you plan to send your kids to private school for high school, dream they will attend university or want to buy them a car for their 21st, a future fund is a great idea. Even small amounts of money invested over the course of your child’s life with compound interest can build up to a substantial amount of money. This strategy can help you to afford the bigger expenses when the time comes.

Cost saving tips to help manage your family’s financial planning

woman budgeting
Image: Pexels

Raising children takes a long time and a lot of resources. Small day-to-day changes can add up to big savings over the course of the child’s “dependent” life. Below are some additional tips for saving money:

  • Try to lessen transport costs by living, schooling and working in close proximity. Consider if it is cheaper to drive your kids to school or for them to take public transport or ride their bikes.
  • Utilise grandparents for childcare where possible.
  • Buy in bulk to save money and take advantage of sales and coupons where possible.
  • Budget for variable expenses like food and recreation and stick to it.
  • Get your children to make choices about sports i.e. pick one only instead of three or four and take responsibility for their choices.
  • Take advantage of fun, free recreational activities like going to the beach, kicking a ball, throwing a Frisbee, bushwalking or flying a kite.
  • Limit portion sizes – don’t overfeed your children.
  • Buy gender-neutral clothing so they can be reused for a second child. Buy second-hand clothing or if possible use hand me downs.
  • Seek advice from a financial planner about managing your affairs.

Need help with Family Financial Planning?

Every parent wants what is best for their child, however, with the high costs associated with raising children it is not always easy.

Having a sound family financial plan can help maximise what parents can provide for their children which is why it is wise to seek advice from a financial adviser. In consultation with a financial planner, parents can make informed decisions about investment options, term deposits, mortgage structures and how to maximise their superannuation.

If you would like to discuss financial planning for your family or get support via expert financial planning strategies, please contact Certified Financial Planner Elliot Watson on 0409 931 984 and start the conversation.

The information within, including tax, does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. The views expressed in this publication are solely those of the author; they are not reflective or indicative of the licensee’s position and are not to be attributed to the licensee. They cannot be reproduced in any form without the express written consent of the author. Elliot Watson Financial Planning Pty Ltd is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.

Elliot Watson

Elliot Watson is an award-winning Certified Financial Planner with over 15 years' experience. He is passionate about helping people grow and protect their wealth.

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