Having a family changes everything. Where once you only had yourself to worry about, there’s now your partner, your children and a future together.
That future may include university education for the children, an early and comfortable retirement for you and your spouse, and any other surprises that life has in store. So, it is best to be financially prepared.
Thankfully, managing your finances is easier than you think.
The best thing you can do is this: just get started if you haven’t already. Saving and investing are easiest when you start early. While it’s not impossible to start late in life, starting earlier means you enjoy the fruits of your hard work sooner.
“What about the complexities of investment?” you ask. Don’t worry, financial management can be learned along the way. What’s important is taking those first steps towards a brighter financial future for your family. Here’s 5 things you should be doing.
1. Be Organised
Information is king. Before you can manage your finances, you first need to know your financial situation.
Sit down with your spouse and account for everything — this includes everything you earn, everything you’re spending on, and everything you have saved away, invested, or are planning to invest. While it would be nice to account for every single cent, it’s not necessary. The goal is to find out how much you have and where your money is going.
You can use software or an app to keep track of all this data. Or you can do it the old fashioned way and write it all down with pen and paper. At the end of this exercise, you should have a pretty good picture of your financial situation.
You’ll know your fixed expenses (rent or mortgage loans, fees, car payments, utilities) and you’ll see your variable expenses as well (family holidays, groceries, shopping, or leisure activities).
2. Watch Your Expenses
Now that you have this picture of your finances, you can take a cold hard look at the facts. Is too much money going to unnecessary expenses? Are you saving enough? What does your debt situation look like?
The first rule of financial management is an obvious one: Spend less than you earn. To achieve this, you can either spend less or earn more.
Earning more is often out of our control, especially if you work for a salary. However, you may want to look at multiple revenue streams.
A side business can be both personally and financially rewarding. And it could be a saving grace should you unexpectedly lose your job. Investments can also significantly add to your earnings (more on that, later, but for now, read what one financial expert has to say about starting investments).
Spending less, on the other hand, is firmly in your control. You decide when to treat your child to an expensive toy, or when to go on a shopping spree. You hold the purse strings.
Managing debt is also part of curbing overspending. While not all debt is bad — for example, a debt to start a business is commonplace and makes future earnings possible — in general, it should be avoided. Credit card debt, in particular, is harmful because of the high interest rate involved.
3. Have Short- And Long-term Goals
If you’ve managed to cut your expenses successfully, you may notice that you now have some money left over. What do you do with it? If you have a family, the list can be a long one. That’s why it’s important to prioritise and set goals for what you want to achieve in life.
An important goal would be to build a savings buffer or emergency fund. The amount that should be in this fund should roughly be 3 to 6 months of your salary. This emergency fund can help you in case of unexpected medical expenses, job loss or other emergencies.
A top concern for parents is a college fund. Asian parents in particular put a high value on education. University fees can be considerable, so putting money away for that eventuality is a good idea — and easier to do if you have 15-20 years ahead of you to save.
To manage life’s uncertainties, consider insurance. Life insurance and critical illness insurance are essential in ensuring that your family will get some financial support. Beyond that, a retirement fund can remove the burden of elderly care from your children.
But those are all long-term financial security goals. What about short-term ones?
Here’s the fun part. A bigger house, a long annual family holiday, or just treats for the whole family perhaps. Figure out the costs and how much you would need to save every month to make it happen. Also, don’t forget to set clear deadlines — and stick to them.
4. Know Your Budgets
Think of your budget as your plan to achieve your financial goals. Once you know your fixed and variable expenses and your financial goals, you can create a budget to fulfill your objectives.
There are many approaches to this, such as the 50-30-20[1] rule, which divides your budget into needs (50%), wants (30%) and savings (20%). The 50-30-20 rule is an elegant and simple budget plan that not only enforces savings, but also guides you to spend and enjoy your money.
You could even create a spreadsheet and get into the minutiae of your budget as you go through each month. What’s important is that you find a plan that works for you and your family.
Just as your goals are for your whole family, get everyone in your family involved in the budget planning. This can provide precious life lessons for your children.
5. Educate Yourself On Financial Management
With your savings in place, you can put your money to work through investments. All you need now is a little extra know-how.
The steps above give you some basics of financial management, but you will need to spend some time to read up on the financial instruments available to you. It’s also a good idea to keep updated on all the latest developments.
To get started on learning about trends and innovations in finance, get some light reading with meaningful insights through InsightsOut. And to improve your financial knowledge, there’s no better place to start than the Greenhouse at Eastspring.
But this is only the start. Keep reading to help you make better and more informed decisions when it comes to investing for the family and achieving your short- and long-term goals.
Financial terms and concepts can be intimidating, but a better understanding of these can become a powerful tool to grow your money.
Finally, know that you don’t have to invest on your own. You can always seek the help of a financial advisor. With the right partner and resources behind you, you can be well on your way towards wealth creation and a brighter future for your family.
Want to know more about financial management? Have an Eastspring Unit Trust Consultant get in touch with you to discuss your investment goals.
[1] www.investopedia.com/ask/answers/022916/what-502030-budget-rule.asp#:~:text=Senator%20Elizabeth%20Warren%20popularized%20the,socking%20away%2020%25%20to%20savings.