One of the greatest challenges that can face a married couple is the arrival of children.
These challenges can be emotional, physical and financial. I read a story recently which summed it all up pretty well. It went something like this-
“When I went off to university, everyone told me that my life was about to change forever. But it didn’t really change. Then I went into the army, and people told me my life would change. It did - at least for a while - but once I got out my life returned to normal. Then I got married, and people told me how much my life would change. And I’ll admit it changed somewhat, although not as much as I’d expected. Then I had kids. Everyone told me yet again how much my life would change. And this time they were right. My life really, really changed. Man, did it change!”.
Children are a financial responsibility and for many couples the timing of being parents has been a result of careful deliberation on their continuing ability to pay the mortgage on a single or reduced income and to achieve at least a minimum standard of living - whatever their individual requirements might be.
There is a need to more carefully budget expenditure where perhaps, with two incomes, cash was freely spent, particularly on social and luxury items.
A contingency fund becomes much more important with a reduced income. In some periods the costs of child rearing and general future living are potentially going to exceed income and the contingency fund will have practical use, as well as in unexpected or emergency situations.
Parenthood with it’s additional responsibility to a new life requires a review of insurances. If a couple with a mortgage and two young children were to calculate their life insurance needs the income earner may be shown to need $400,000 to $600,000 and the caregiver perhaps $150,000. These amounts will decrease as the children get older. Many parents with young children carry inadequate life insurance. Income insurance and health insurance are other important issues.
Investment remains important although family and mortgage requirements mean that funds available for investment will be at a minimum. The magic of compounding however would suggest that even that minimum amount is important as a foundation for a longer-term retirement fund.
While investing for retirement will be one goal it may not be the only one. Increasingly parents must consider the future costs of funding post-secondary school education for children, and some may want to ensure that sufficient funds are available for the marriage of children.
Parenthood is a time where good financial management is important both for current needs and for future events.
