Why it’s important to create a financial plan for your new family
Financial planning helps you identify your short and long-term objectives and create a roadmap to achieve those goals. This is why it’s crucial to have a financial plan, whether you are single or looking to start your own family.
However, financial planning is even more important for newlyweds and new parents, as they have their children’s future to consider on top of their personal life goals.
If you haven’t done so yet, it’s not too late to start creating a financial plan for your new family. It is essential for the following reasons:
1. Family security
Even if you are newlyweds or yet to become parents, ensuring your family’s financial security is a crucial aspect of financial planning.
You might think that your combined income with your spouse is enough to cover monthly expenses and even some occasional indulgences. However, you also need to plan for unexpected events that can take their toll on your finances, such as unemployment, accidents or illnesses that could lead to costly hospitalisation.
Therefore, you need to set aside an emergency fund that should ideally cover your basic living expenses for three to six months. Depending on whether you have debts or loans and credit cards to pay, consider getting the appropriate life insurance or additional coverage for peace of mind.
2. Income management
Knowing and understanding the benefits of financial planning requires you to budget your income every month. When you budget your income regularly, you’ll realise that planning for your expenses is an essential practice on the road to financial wellness and independence.
By staying on top of your monthly outgoings, such as bills, mortgage, loan or credit card payments, rent and taxes, you’ll know exactly where your money is going.
You can use this as a basis for reassessing your spending and checking where you can cut back. This way, you’ll be able to allocate part of your budget to your savings and for building up your emergency fund and other aspects of your financial backup plan. It doesn’t matter if you start small. What’s important is that you’ll be slowly but surely building your savings and emergency fund. You can always increase the amount you save after most or all of your debts are paid.
3. Debt reduction
When it comes to financial planning, debt reduction and elimination are considered primary goals. If you are saddled with debt or are unable to manage it, it may take you years to build up savings and much longer to acquire insurance. You may even find yourself unable to achieve your goals for your children’s future in time.
Therefore, every time you budget your income, always set aside a portion for debt repayments above the minimum to chip away at the principal amount whilst paying interest.
If you find it difficult to balance your finances, you can seek help from a financial advisor or personal accountant. They can help you keep track of your finances, including your expenses, savings and taxes. They can also guide you in finding the right financial products that could help ease your financial burden and enable you to achieve your goals.
4. Funding for children’s education
Among new families, one of the core goals of financial planning is preparing for their children’s future, particularly in relation to education.
In New Zealand, your children’s education is free from age 5 to 19 if they enrol in state schools that are owned and funded by the government.
When it comes to tertiary education, the New Zealand government shoulders the cost of tuition and mandatory fees for the first 120 credits for eligible students. However, you still need to consider your child’s living expenses and school fees for the duration of their university life.
If you want to ensure your children have the freedom to choose their degree and school by the time they are old enough to attend university, you need to start preparing financially today. You may consider savings and long-term investments to be able to fund your children’s tertiary education.
5. Retirement planning
There’s no official retirement age in New Zealand, although most people stop working from age 65 once their super and other retirement benefits kick in.
However, when you’re planning for retirement, you need to consider what lifestyle you want, how early you’ll retire and where you’ll live, as these will inevitably impact how much you need when that time comes. After calculating the cost, would your super and pension payments be enough, or will you need more?
Remember that reasonably healthy people these days live well into their 90s. So if you plan to retire at 65, you need to have a budget to cover your cost of living for the next 25 years or more. You should also factor in inflation and plan for goals that you’ll be spending on, such as travel, dance lessons or joining clubs where you can indulge your hobbies or passion.
Again, you might want to consider investing in portfolios managed by professional investment advisers, KiwiSaver, alternative superannuation and other similar products. In doing so, you’ll have additional income sources to tap into when you decide to retire.
6. Financial health and freedom
It’s nice to think that love and commitment are enough to keep a relationship going. Of course, these are crucial foundations for building a healthy, loving relationship and a happy family.
However, financial stress can take its toll even on the most committed marriages. And, without financial planning, you’ll be compounding this pressure on your relationship.
So, to avoid money issues and prevent financially straining your marriage, focus on creating a viable financial plan that you can work toward on a monthly basis and for the long term. Once you work through this, you will gain not only the highly coveted financial freedom you want but also contentment and peace of mind.
Someday, you’ll be able to spend on the things you need and want without having to worry about unpaid bills and mounting debt.
Discipline is key, and this is something that your children could emulate someday so that they, too, will enjoy financial freedom when they’re on their own.