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Financial tips for married with kids

Financial tips for married with kids

December 16, 2014 / 03:49 PM IST

Anil Rego
Right Horizons

Marriage is the first step towards a family, and once you have children or are expecting a child, you have a family to take care of. This means additional joy and happiness, but also additional responsibility in regard to providing for your family. Income generated from the two adults to run the family was more than enough in the past, whereas nowadays despite the increasing household disposable income, the increasing consumption and rising inflation makes it harder to raise a family even with double income. One has to plan their family finances optimally, in order to ensure that their family’s needs and wants are taken care of, as well as some amount of savings is done.

To start planning your family finances, you need to start preparing a budget. A budget should include your entire family’s expenditure and means of income. By doing so, one could get a clear idea on what their overall expenses and overall income looks like, and this can help you to curtail unnecessary expenses and save more. Spending is unavoidable, but over spending leads to one's future financial situation getting affected, this limits your ability to build wealth and save money and meet emergency requirements. To avoid overspending one has to know to differentiate between wants, needs and luxuries. Remember your needs should be taken care of first, only then can one even consider wants and luxuries.

To make rationalized decisions regarding certain expenses, the best way is to be tough with yourself and reduce the non-essential spends, for example if you find the ‘eating out’ category is very high each month, you can decide to cut down on going out for coffee as often. Impulse spending should also be curtailed, as these are not budgeted for and result in extra expenses. This is very important when you are trying to ensure that there are some savings each month, or at the very least that you break-even.

One should also plan and invest for not only the child’s immediate requirements, but also for their education and (especially in India) their wedding. The earlier one starts planning and saving money for these essential parts of their child’s life, the larger the corpus is likely to be. It is also advisable to save for near term goals (such as food, toys, medicine, etc.) in debt instruments, and invest in equity instruments for the long term, such as education or marriage.

You can get your children an add-on card, which can be used for emergencies. However, the recent trend is that children expect to get a card once they are in college and want to use it to buy several things that are not necessary. Giving your child a card should go hand in hand with an explanation that the card is to be used to emergencies only and not otherwise, and since it is an add-on card, you can monitor their usage. This will give your child the financial responsibility of having a card and knowing how to use it, and stand them in good stead later in life.

It is advisable to invest on a monthly basis (through a systematic investment plan/ systematic transfer plan), as this will give one the double benefit of regular investment & compounding as well as negating the possibility of overshooting the budget and hence delaying one’s savings. Ideally, one should automate this process to avoid any last minute delays in investing. Automating the investment process by a direct bank transfer to a mutual fund/ recurring deposit/ etc. will help in ensuring the savings objective is met and it also curtails the number of impulse spends - keeping you within budget.

One should always keep in mind that insurance is critical and ensure sufficient insurance coverage. It is advisable to regularly check the cover and to estimate current and future insurance needs - be in for vehicle, home, life or medical, and then make a decision if there is sufficient insurance cover or to increase/ change the cover. It is advisable to go in for term plans early on in life as the premiums will be lower, giving the maximum life cover for the minimum premium.

Summary:
• Keep a contingency fund with at least 3 - 5 months of living expenses
• Keep a strict budget and stick to it
• Ensure that your retirement savings continue
• Automate investments and follow the SIP route for maximum returns

first published: Dec 16, 2014 03:49 pm

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