Whether you want to stop living paycheck to paycheck, or you’re hoping to build a nest egg for your child’s future, you’re not alone if you want to start getting your family’s finances in order.
A stunning percentage of Canadian families have grappled with financial fallout over the last year, with one-third admitting that they think they will never financially recover.
Raising a family today can come with unexpected financial surprises, so it’s important to re-evaluate and adjust family finances regularly.
No matter what goals you have as a family, achieving financial stability means regular financial planning…starting with taking an honest look at your current financial position.
Do A Family Financial Audit
One of the best ways to move towards financial freedom is with budgeting. However, for your budget to be effective, you need to continuously revise and adjust it as your family goes through different stages.
For instance, with the birth of a new child, you may need to make adjustments for childcare expenses, or reduce income to reflect reduced working hours during parental leave.
It’s also important to look back before drafting your family’s budget. Check past bank account statements to identify spending patterns and create a more accurate budget for individual categories such as groceries, entertainment, or childcare.
Stick to the same approach when reviewing any debt. Be sure to include spending fluctuations like school breaks or family vacations.
Address Your Top Three Expenses
Another tip for getting your family’s finances under control is to reduce spending. Unfortunately, many families spend the most on essential expenses like housing and transportation.
According to estimates of household spending for 2019, Canadian households spent two-thirds of their income on housing, food, and transport. In fact, an average of 29.3 percent of household income is spent on housing.
And with house prices steadily rising, that amount isn’t likely to go down any time soon. So, if you want to lower that amount to increase your savings, looking into options like refinancing your mortgage might be an option.
Be sure to leave enough time to prepare yourself and your finances before moving forward, though.
Similar to conventional loan requirements, refinancing often requires a credit score of 580 or higher, along with a low debt-to-income ratio.
Map Out Family Goals And Link Them To Your Finances
Last (but certainly not least), take the time to think ahead about your family’s short and long-term goals – and what they may mean for your family’s finances.
A common mistake families make is failing to connect their upcoming goals to their financial plans, which often means they then find themselves financially unprepared.
For instance, if you are planning on moving to a bigger home in a few years as you expand your family, you will need to think about saving for the down payment and preparing for a larger monthly mortgage cost. Is your monthly income able to handle those increases?
Similarly, if you are thinking about your child’s college education, it may be time to open a registered education savings plan (RESP).
Finally, don’t underestimate the value of a rainy day fund. While experts recommend having 3 to 6 months of expenses saved up, having any amount set aside can be useful.
Aim to set aside a small, sustainable percentage every month, and think of it as a savings pot for future expenses such as holiday camps or car emergencies.
Remember to continuously review and update your family finances as your family grows. For your family to be in the best shape, your best bet is to have a financial approach that grows along with you.