Parenting and the family budget
Becoming a parent marks the beginning of a very significant life transition, which, with its many financial demands, has a very significant impact on the family budget from the prenatal period up to the early adult years of the new family member in some cases.
A first child and children born afterwards affect, among other things, the cost of food, healthcare, insurance, education, clothes, and utilities.
If not properly provided for, these new and growing expenses have the potential to seriously derail a budget and a family’s entire financial programme. Balancing the budget requires effective skills in managing expenses and meaningful strategies to earn additional income.
The impact on the budget begins to be felt from as early as the prenatal period during which regular medical care must be accessed and paid for. Sometimes there are complications that tend to increase the cost of such care. A difficult pregnancy can also affect the ability of the expecting mother to work, thus possibly reducing the income of the family.
The period leading up to the birth of the child is a time for buying clothes and all else that is necessary to meet the child on delivery. Some items need not be bought new. Where this is possible, it reduces the level of expenses and thus takes some pressure off the budget.
At this time, having good relations with family and others can reap rich dividends as gifts from them can assist greatly to reduce spending and relieve the budget of some pain.
Many expenses such as the cost of education, food, and clothing tend to increase over time, thus making it necessary to provide for them well as they take up a growing share of the budget.
In order to provide for the unforeseen, many families opt to buy life insurance or to buy more to provide for the child or children in the event of the premature death of one or more parent. This requires more money to pay the premiums, thereby increasing the spending side of the budget.
It is easy to understand why. Children need to get an education and to have their day-to-day needs satisfied. Life insurance provides funds for those purposes in the event of the death of a parent. To ease the pressure of paying for more insurance, term insurance can be considered. It gives more coverage per dollar than permanent insurance. Term policies can generally be converted to permanent insurance when funds are available.
The major bread winner may find it necessary to buy disability insurance to provide some income for the family in the event of the inability to earn due to disability caused by injury or illness. This also requires the payment of premiums and increases the spending side of the budget.
The need to provide for short-term unplanned events, such as unemployment, makes it necessary to increase the family’s emergency fund, made up primarily of cash and liquid short-term financial instruments. To do this may require shifting funds from another part of the budget. Financial advisers recommend that families maintain an emergency fund sufficient to keep the household running for three to six months.
At the same time, saving for retirement and other major family priorities is best continued if the family is to realise its various goals. Rationalisation of the budget may thus be necessary, and less necessary spending may have to be reduced or eliminated.
When this is done effectively, it will likely enable the family to continue with its investment programme even if not at previous levels, for it is inadvisable to derail this part of the financial programme of any family.
To ease any likely stress on the budget, working parents should know as much as they can about the benefits their employers offer. They should know the full benefits of employer-sponsored health insurance policies, for example, and access them when necessary.
Parents can expect to be responsible for the financial well-being of their children for as long as eighteen years – sometimes longer if they undertake to assist with funding tertiary level education. This item alone can bear heavily on the budget, but children can help by securing, where possible, temporary employment, especially during holiday periods.
When a family grows, its expenses grow, thereby impacting the family budget. Keeping it in balance so that the priorities of the family can be maintained over the long term ought to be a main focus of every family. Constant review and the involvement of the children as soon as they are able to participate should help to manage expenses and the budget better.
Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.finviser.jm@gmail.com