“There’s no hiding from the fact that the household budget takes a hit once kids come along, particularly if one parent decides to take time out of the workforce.” —Vipin Bhatia,General Manager, Strategic Initiatives & Commercial Banking at Australian Unity
Key points
- The big expense parents will need to consider is education, which can vary greatly based on your decision to opt for private or public schooling, and how many children you have so budgeting should begin for this early.
- While life can be expensive at times, don’t lose sight of the fact that your income is there to be enjoyed.
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It’s a good idea to get the whole family involved in your savings goals, so that everyone’s on the same page. That way saving for that holiday becomes a family affair.
It might not be a particularly thrilling prospect but taking stock of your finances is an important part of life. And starting or raising a family is often one of those times when you stop to think about your finances and reprioritise your spending and goals. The good news is that you’ll feel far more in control if you’ve got a financial roadmap in place.
Australian Unity’s General Manager of Strategic Initiatives & Commercial Banking Vipin Bhatia, says the earlier you start budgeting, the better off you’re likely to be financially.
“Whether you’re paying off a mortgage, planning a holiday or just want to better understand how you’re spending your money, a budget can guide you into winning financial habits that can last a lifetime,” Vipin says.
What to consider when budgeting for a family
Budgeting is particularly important once you start a family. “There’s no hiding from the fact that the household budget takes a hit once kids come along, particularly if one parent decides to take time out of the workforce,” Vipin says. “Careful budgeting can make a big difference to enjoying this period of your life.”
The big expense parents will need to consider is education, which can vary greatly based on your decision to opt for private or public schooling, and how many children you have. Budgeting for education early on — for example, by creating a regular account to sink funds into — can take the sting out of school fees when the time eventually comes. Don’t forget to include school uniforms, books and computer devices, and stationery into your budget. It all adds up.
Another item to consider is your child’s activities and sport, which can eat up a large proportion of the budget, especially if you have a more than one child.
Along with education and activities, here is a list of other items you might consider in your family budget:
- Childcare, after-school care or babysitters
- Takeaway nights
- Extra food and grocery items
- School lunch orders
- Birthday gifts for friends
- Birthday parties
- Toys or hobbies
- Entertainment, such as the movies or play centers
- Clothes and shoes
- Haircuts
- Dental, eyecare and medical costs
- Health insurance and ambulance cover
While life can be expensive at times, don’t lose sight of the fact that your income is there to be enjoyed. “Saving isn’t just about stashing money away for eternity. It’s about setting a savings goal and once you reach that, setting a new goal. Budgeting, on the other hand, is all about finding the right balance for you,” Vipin says.
Five steps to creating a family budget
Having a household budget in place can help you understand where your money is going and find better ways to manage your income. The big-picture items to consider include:
- Your family income
- Your mortgage or rent
- Expenses such as bills and loans
- Savings goals
Here some strategies to help you get started.
1. Work out your income
Knowing exactly how much your household brings in every month is an obvious but important first step. Start by writing down your wage (including your partner’s wage if you are a couple) and add it to any other income, such as government benefits, side hustles or income from investments, such as rental income on an investment property.
2. Add up expenses
Sit down and work out your regular bills. This should include mortgage or rental costs, utilities, loans, clothes, entertainment and even that daily caffeine fix. If it’s a regular or recurring expense, make sure you capture it.
If you’re unsure what you are spending in a typical month, keep your receipts for 30 days so you can take stock of exactly where your money goes. Some people like to track their expenses through an app on their phone, such as Expensify or Squirrel Street; others use an Excel spreadsheet or old-school pen and paper.
One last tip: go through your bank statements to highlight all those hidden monthly costs, such as subscriptions you no longer use or small direct debits you may have forgotten about. These can add up over the course of a year, so reviewing them and getting rid of the ones you don’t use provides an instant savings boost.
3. Compare income and costs
Next, compare your outgoings with your incomings. This will allow you to see what’s left at the end of every month. If you’re spending more than you’re earning, the budgeting process is going to be transformative for you.
4. Set some financial goals
Once it’s all laid out in front of you and you’ve made the earth-shattering realisation that your family eats out more often than you realise, it’s time to set some goals.
Start by looking at how much you can comfortably reduce your spending without too much change to the lifestyle you enjoy. Then, make some decisions about what you’re prepared to forego in a bid to improve your finances.
You can organise your goals by order of priority, such as:
- Paying off the mortgage
- Paying off credit cards
- Saving for the kids’ education
- Saving for a family holiday
- Starting a sinking fund for a new car
- Saving for some renovations
- Contributing to a rainy-day fund
It’s a good idea to get the whole family involved in your savings goals, so that everyone’s on the same page. That way saving for that holiday becomes a family affair.
5. Create your family budget
Now that you understand your expenses, you can start making the decisions that will determine the most appropriate budget for your family.
You can map out your budget in an exercise book, a spreadsheet or a budgeting app like Pocketbook, MoneyBrilliant or MoneyTree; setting up separate bank accounts for each expense bucket is another handy way to keep track.
When working out your budget, consider isolating regular small amounts in a separate account. This slush fund can be very handy if you need to make a sudden purchase that’s not in the budget—for example, if you discover that your child unexpectedly needs braces, or you need to take an unforeseen interstate trip. It provides a safety buffer for that non-emergency, yet real-life occurrence.
Your budget can also be an opportunity to help your kids learn good money habits. Rather than being coerced into impulse purchases by the younger members of your family, plan for these expenditures with your child and ask them to wait until you’ve saved up for the purchase — this prudent approach helps you stay within your budget while also teaching children about better financial management.
The number-one budgeting tip for families: discipline
The economic crisis will likely change the way we think about financial stability. As Vipin explains: “It might be hard for some to hear, but the fact is that people who have the discipline to save will manage economically challenging times a lot better than those without that discipline in place.”
They say everything changes when you have kids, and how you manage the family budget is no exception—it too needs to adapt to reflect your new household needs.
Building a nest egg for the family
Wen, 35, and Nalini, 32, have just welcomed their second baby and it’s a joyous time. Here’s how the couple managed on one salary while also investing in their children’s future.
Making the most of every dollar
Like a most new parents, Wen and Nalini are sleep deprived and time poor. The couple are currently on one salary as Nalini is staying home for the next 12 months to look after the new baby and their young son. Thankfully, Wen is on a decent income, but the couple still needs to stretch every dollar, particularly as they are also looking to build a nest egg for their children’s future.
Finding extra cash by budgeting
Wen and Nalini drew up a budget to understand where they could save on expenses. It allowed them to identify some quick wins, such as cancelling subscriptions they no longer use, which freed up money to put towards savings and investments.
Looking ahead
Wen and Nalini want to be able to help their kids by giving them a lump sum when they become adults. When they discovered Nalini was pregnant with their first child, the couple set up an Active Saver account, which they grew with automatic monthly contributions from their day-to-day Freedom Saver account. While they were keen to implement a similar strategy for their second child, Wen and Nalini recognised there might be other ways to grow their savings.
Advice matters
The couple saw a licensed financial adviser, who suggested some options to stretch their savings dollars and set the family up financially. The adviser recommended they consider:
- Investing in 10Invest, a low-cost investment bond, for at least 10 years, which means they will not pay personal tax when they withdraw their money.
- Allocating some funds to a Lifeplan Investment Bond, another tax-effective investment to help build their wealth.
- Establishing an Education Savings Fund to start saving for their kids’ schooling. While Nalini and Wen are unsure whether they will send their kids to private school, they can also use the money for other education expenses.
Planning for the future
By making small sacrifices now, Wen and Nalini are making a big difference to their future. “We barely miss the cuts we made, but I feel much more confident now we’ve got a plan in place,” Nalini says.
