Getting Your Finances Back on Track after Having a Child
By Dr. Steven Enticott
What a financial distraction raising children can be! Having said this, I now want to clarify, having children is the greatest thing that has ever happened in my life, and financial implications were never considered.
However, going from two wages to one, having to meet childcare costs, and the additional child related expenses bring significant financial distractions that need to be addressed and put into context so as to avoid spoiling the wonderful experience of raising children.
The Employee Financial Wellness Survey (PWC - USA) provides a great list of the most common financial distractions. About 49% of respondents found meeting household expenses difficult, 24% use credit cards for monthly necessities, and more than half (53%) consistently carry outstanding credit card balances. Approximately 24% stated that losing a job tops the list, 14% not being able to keep up with debt, 7% fear losing their home, and 6% children's schooling.
Do any of those distractions sound familiar?
The number one financial tip I can give is that you need to understand your financial story and how children fit into it.
When you understand this, the rest falls into place.
One type of situation is:
"We just had a child, and I'm financially well behind where I want or need to be. My career has stalled and the marriage is shaky because we're constantly arguing about money, and my partner won't return to serious paid work for years to come.
Far from repaying the mortgage, it's actually going to rise slightly each year with the kids' future secondary education to pay for on top of all the other demands on a single income.
To top it all off, my superannuation is pathetic, so there's no way I'll retire at 55, and with my 70 year old mother's chronic health issues and associated bills, where's that going to leave us over the next 20 years?"
This isn't an unusual situation and represents a life full of financial distractions.
But is there a way to respond to what looks like such a bleak outlook?
Is the mortgage really a problem? After 20 years, the payments will fall as the balance falls, and even if it doesn't happen quite that way, inflation will deflate the balance, 'shrinking' its real value while inflating the property's price, and creating a bigger gap between debt and equity, and all by doing absolutely nothing.
As for my superannuation, I can start treating it seriously and review the fees and the advisor commissions I'm paying. By taking an entirely new and sensible approach to my investment strategies, and by adding to it from my wages each month, over the next 20 years the balance will increase and compound in plenty of time for retirement.
My cost of living over the journey will start to fall as the children finish secondary school and move onto university and eventually out of home. Knowing this means I can stop being distracted by it and plan to maintain a neutral cash flow over that period, after which we'll have a solid base to once again grow from.
After that and with my partner retrained and back into the work force full time, we'll return to a positive cash flow again, and start adding to our superannuation. With our property's value and mortgage gap growing steadily, together with the ability to take on other investments, it's really looking like we're on track.
While planning to retire earlier may not be an option, reducing my hours to three days a week when I reach 55 certainly may be an option.
Finally, what does it matter? A good friend got seriously ill recently, and one of the senior managers at work suffered a major heart attack. When I think about that, I realise that none of these financial distractions really matter. Spending time with my family and friends is what really matters and that is free of costs.
So what's the checklist for the story?
It's simple. Relax. Draw up a plan (with a professional, if you like) that focuses on your story and take the pressure off yourself.
About Dr. Steven Enticott
Dr. Steven Enticott is a finance professional, speaker, author, taxation specialist and senior partner of CIA Tax. He is a Chartered Tax Advisor, Registered Financial Advisor, Fellow of The Institute of Public Accountants, Fellow Member of the Taxation Institute Australia, and a passionate member of the International Positive Psychology Association.