If you’re thinking about starting a family, or perhaps deciding whether you should have another child, it may be time for you and your partner to sit down and discuss the “B” word. No, I’m not talking about birth coaches, baby names, or breastfeeding. Mom and Dad, get ready: it’s budget time. Here’s why:
Nation of Spenders, Not Savers
The shocking truth about consumer spending and household debt in Canada these days is this: we’re out of control. And here in BC, we’re leading the pack. Families in this province have the highest levels of household debt in the country, thanks in large part to our sky-high property values.But surprisingly, those hefty mortgage payments are only part of the problem. It turns out that BC consumers are also carrying, on average, more than $37, 000 in non-mortgage debt. Sustainable? Not really. According to Vancouver’s Credit Counselling Services, the number of people seeking help with personal debt rose by 7 percent in 2012, and that’s following a whopping 30 percent increase in 2011.
So just who are these debt-burdened souls? Well, overwhelmingly, they’re people between the ages of 35 and 44. And that’s not surprising, as these are the years when typically we’re establishing our careers and households, starting and growing our families, making those big-ticket purchases (homes, vehicles, major appliances) and, more and more frequently, taking on unrealistic levels of debt to keep it all going.
While it may seem like maxing the credit card is the only way to keep up with the costs of raising kids today, there is an alternative. It’s called budgeting, and if you’ve got discipline and determination, it works.
Getting Into the Saving Groove
Don’t think about your budget as an exercise in cutting back – instead, think of it as a plan for redirecting your money so that you can start spending it on the things that you really want.
According to Khadijah Suleman, a Canadian financial literacy consultant with more than a decade of experience educating families on the basics of managing money, one of the reasons behind Canadians’ growing indebtedness is our demand for instant gratification, which leads to impulse spending.
For parents-to-be impatiently counting down the days until their bundle of joy arrives, postponed gratification is already a concept they’re familiar with. That makes it an ideal time to start planning for their family’s financial future.
Get Clear On What You Want
Sheila Walkington, a Vancouver financial planner and founder of Money Coaches Canada, typically sees couples coming for advice well after their children are born, when the family is already floundering in debt. Her advice to first-time parents is to start planning as soon as possible to prepare for the drop in cash flow when, with one partner on parental leave, families may find themselves living on three-quarters or less of their normal combined incomes. Then, she says, be prepared to carry on with that plan for the next several years: “The reality of going back to work is that childcare is such a large expense, so if families can get used to living on less, they’ll find it easier.”
Plans to start spending wisely, saving, and reducing debts need to begin with clear shared goals and priorities, according to Walkington. “Be clear on what you want, and what you’re willing to do to achieve your goals”, she advises.
As Suleman points out, “Budgeting doesn’t mean giving up everything. It doesn’t mean never going out again or enjoying any luxuries. It’s about being in control of your spending and planning for those luxuries. Following a budget means an investment of time and effort but in the end, it’s worth it because the result is so sweet.”
You’re going to need to take a long hard look at your family’s spending habits. So dig out those credit card bills, utility bills and invoices for any major expenses you had over the past year. They’ll help you estimate your monthly expenses. If you can’t reconstruct your past spending history, try recording all of your expenses over the next month or two. The object is to figure out where your money actually goes and where you can cut spending.
Talk with Your Partner
What are the most important things you spend your money on? What could you do without? If you have older children, try including them in the discussion so they understand why the family is making a budget and how they can help.
Choose Needs over Wants
Divide your expenses into things you need (groceries, diapers) and things you want (like restaurant meals, or movies). Then try and eliminate unnecessary expenses and put that money towards savings or paying off debt.
Identify Your Savings Goals, and Build Them into Your Budget
For example, your short-term savings goal might be buying baby equipment or outfitting the nursery. But don’t forget about saving towards long-term goals like your child’s university expenses, or your retirement.
Make “Being Debt-Free” One of Your Goals
Make a list of all your debts and the interest rate you are paying on each of them. Try to pay off the debts with the highest rates of interest first.
Pay More than the Minimum
Even a small increase in payments on bills can make a big difference in the amount of interest you pay and how long it takes to pay off your debts.
Stick to Your Plan!
Once you’ve done the work to create a family budget the key to long-term success is making sure stick to with it and that the entire family is involved in large family purchases. Budgeting is great way to role model smart money management to your children at any age.
Source: Financial Consumer Agency of Canada: www.fcac-acfc.gc.ca)
Marilee is a Vancouver communications consultant and mother of two. Her resolution for 2013 is to stick to her budget, and her new shopping mantra is, “needs before wants, needs before wants.” She blogs about writing, social media, and other topics as they occur to her at mapcommunication.ca.