Three ways to save for planning a family
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We read all the time about the increasing expense of bringing up children, and there is a growing trend toward producing offspring later in life, when we are more financially stable.
Obviously this is a great way to establish our careers first, give us a financial head-start and ensure we have a decent career to head back to, should we choose. This is a sensible approach and, with modern medicine resulting in us all living longer, healthier lives, quite a viable one ... provided we put a plan in place to save some of our hard-earned cash for when our bundle of joy arrives.
But with the "she'll be right, mate" attitude we're accustomed to in Australia, many of us put off saving or investing for when we've made the decision to have children for later. Often this is because we have not put a definitive answer on when "later" actually is, and therefore just carry on assuming that our wealth will build and we'll know when the time is right.
Now, we certainly can't plan exactly when we will get pregnant, especially when waiting later in life to have children. However, what we can do is come up with a rough timeframe for when we'd like to be financially ready, and put a few things in place to ensure that money will be available when the time comes. Money doesn't save itself, we need a clear goal and a plan for how to achieve it.
Here are three simple ways to help you determine how much you will need, and how to achieve it:
By determining when you would like to have children, you are setting yourself a firm and tangible goal for when you need to be ready financially. This will also help you to stay on track once you work out how much you need to accumulate, as you won't want to miss an instalment because you'll know that means deferring your financial readiness for children.
How much you personally need to feel ready to bring a new life into the world will vary greatly for each of us. The first consideration will be: are you going to return to work, or will you stay at home long-term? If you will cease working, how much ongoing income will you have available? This will help you to determine whether or not you are saving for say, a year's worth of income, or if you need much more than that to support the family for a longer period of time.
The second consideration is what level of immediate, but likely one-off costs, you will incur when your child is born. You'll need to come up with an amount of money that you feel will cover the costs of establishing their room and purchasing everything that goes with a newborn.
You may also wish to take into account long-term education costs at this stage. The earlier you start, the better and the easier the financial burden will be 10, 15 or 20 years down the track.
Build a plan
For shorter-term expenses, like one-off needs at birth, a high-interest savings account will work perfectly. Establish an account with a bank other than your usual institution to make it harder to access, and then set up a direct debit each month right into that account. To work out how much you'll need to save, divide the total amount you need by the number of months between now and when you want to have children.
If you want to save a large sum of money to see you through a period of time when you are not working, your wealth accumulation options should vary depending on how long this might be and how much you might require. If you simply wish to take a few months, or up to a year, a high-interest savings account might also work well, however building a diversified share portfolio or selecting a managed fund might provide a better option, if your timeline is longer and you need to accumulate more.
If you're ready to get a head start on your future children's education expenses, an insurance bond is worth a look. These are tax-paid investment vehicles that don't need to be included in your annual tax return, and that after a 10-year period can provide you with a tax-free lump sum or income stream. There's lots to learn about them (this article on the Wealth Enhancers website explains in more detail), and they're not right for everyone, but certainly can prove to be an effective long-term savings vehicle, especially for those with a tax rate of over 30%.
I'm sure there are so many other new experiences involved when your first child enters the world, that the last thing that you'd want to be worrying about at that stage is money. So start small, but start now and get on track for the future.
Disclaimer: Please note this article is of a general nature and should be used for informational and educational interest purposes only. Please seek professional advice before making any decisions in relation to your own personal circumstances.
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