Managing your finances when you are a parent is arguable the most difficult time to do it. Your expenses are higher, children are expensive and your income may be lower. There are lots of variables and it is a difficult balancing act. It’s easy to overlook some aspects of your finances.
In this short blog I am going to say four mistakes that parents make when it comes to their finances.
Whether it’s the feat of what you might discover or the dread of dealing with money finances, the easiest solution is to avoid the short-term pain by not getting started. This doesn’t normally work out well in the end - the key is to take control. Whether it is knowing how much you spend each month, what your debt level is or your net worth. Just getting organised initially will bring a lot of clarity.
Yes, financial planning involves your money, but actually it is focusing on the intersection where your money and your life merge. You need to look at the bigger picture and what your priorities are for the future. Is it private school for the kids, your dream house, stopping work ASAP, starting a business, travelling? You need to have a think about the purpose you want money to serve for you and your family. Then you can start putting a plan in place aligned around your life, not your money.
This is especially important when kids are involved. No one likes to think about the worse happening, but taking the right options now ensures you have peace of mind that your family will be okay. You may have life insurance for the mortgage but what about your other expenses? A plan that pays £400,000 may sound like a lot, but if the household spending is £80,000 each year this won’t last your family long. Make sure you look at what you need insurance-wise before focusing on other areas.
You may have worked for several companies and had a pension for each. When you set it up you probably went for the default option. Do you know? Do you know how it has performed or what it costs (high charges will erode the value of your plan long term). It is also likely that the default option is a balanced (or mid-risk) portfolio. This could impact the returns it is likely to generate due to the level of risk it takes. You may have an investment time horizon of over 15 or 20 years allowing you to consider more risk in order to benefit from (potentially) improved returns. There are other facts such as appetite to risk and how much in returns you need. Being in the default option when it comes to your pension needs to be reviewed to ensure it is the right option for you.
These are just some of the mistakes that people make when it comes to their finances. Improving in all these areas will give you more clarity and certainty that you are on the right track, and are a good starting point for people when they start their financial planning journey.
If you would like more details on financial planning for parents, check out our guide here.
This blog is for information purposes only and doesn’t constitute financial advice. If you need financial advice you should speak to a trusted financial adviser. Investments can go up as well as down, and you may get back less than what you put in.
