Starting a family is a really exciting time in all our lives; it also presents a number of financial opportunities and challenges.

It is stating the obvious to say that starting a family represents a huge change and all aspects of your life will never be the same again, although for most of these changes it is impossible to prepare, we can at least make some plans for the financial aspects of this life change.

Starting a family dramatically changes both our expenses and our income.  It is likely that one or both parents will initially have some parental leave and/or potentially reduce work hours, reducing the family income.  Expenses are also likely to change completely, a number of things you currently spend money on will no longer be part of your lifestyle, but instead will be replaced by some new expenses such as child care and nappies.  Essentially the household budget will have to be completely re-worked.

It is quite possible that initially you will have a cash flow deficit, particularly if either parent is planning on having time off, if this is the case this deficit will need to be funded. Too many people don’t prepare for this period of negative cash flow and have no plan to deal with the problem ; they normally end up funding the shortfall with credit cards, the worse type of debt!

The best way to prepare for this is to calculate how much you will need to supplement your income and for how long, and start a saving plan to ensure you have a cash reserve to supplement your income for this period of negative cash flow. For many this will not be possible, other options need to be explored, options include changing loan repayments to interest only to reduce costs, using the equity in your house or selling an asset.  The sooner you start preparing for this, the more options you will have to avoid racking up credit card debt.

Once you have a family it is probably the first time in your adult life that you are financially reliant on someone else, and them on you. To put bluntly, if something was to happen to either of you, it is likely you would be immediately under financial strain. Things like life insurance and income protection become more important. As discussed above, it is likely that funds are going to be tighter than usual, so increased costs like life insurance probably aren’t desirable; however these can be funded by your superannuation.

This time also presents a few opportunities, this time may be the only time in your life that you are considered a “low income earner” and this presents a number of opportunities.  Depending on your income a Government Co-Contribution may be available, this is where the government may match your contribution into Superannuation, and another opportunity for low income earners is the spouse contribution rebate. Both of these are attractive options if you have some available savings.

Of course this initial planning is just the beginning! Once you have a family your financial planning goals will change forever. Family holidays may need to be prepared for in advance, things like Children’s education and potential need for a bigger home all become financial planning goals, not to mention increased everyday expenses for things like sport and hobbies and god forbid they need braces! Once you have a family it is more important to plan your expenses and budget accordingly coupled with having a cash reserve for those expenses that can’t be predicted that come along.