How To Manage Your Family Finances
You may be wondering, what does learning how to manage your family finances have to do with investing in property?
It is actually closely related to investing in property. Many investors enter the market because they want to secure their family’s long-term financial future. As a property investor, you might be thinking about your retirement or concerned about your children’s future ability to enter the property market. We are here to reveal the truth about finances and parenthood! We’re tackling this taboo topic and its impact on your property investment strategies.
If you have children (whom you love dearly, of course), you might look at your bank balance and wonder, “Where does my money go?”. In our latest podcast episode, we sit down with financial educator and author, Ana Kresina, as she discusses the financial challenges and considerations that come with raising a family, especially when it comes to property investment and managing cash flow.
Struggling to manage your money with kids? Listen to the episode in full for practical tips on making financial decisions during those critical early parenting years.
Understanding Financial Implications of Parenthood
The decision to raise children brings a huge amount of joy and fulfilment in your life but it also comes with some significant financial considerations. One of the most immediate impacts of parenthood is on your borrowing capacity for home loans.
As your family grows, your ability to qualify for a mortgage can be affected, particularly when your household incomes are reduced due to one of you stepping back from the workforce to take on childcare responsibilities. This transition from a dual income household to a single income often requires a careful reevaluation of your financial plans, especially your cash flow management.
Effective cash flow management becomes crucial during this period, and it is essential to account for all expenses, including the day-to-day costs of raising your children and the potential reduction in disposable income.
We have a range of online calculators to help you manage your family finances including a borrowing power calculator, mortgage repayment calculator and a downloadable budget planner.
This careful planning can help your family maintain financial stability and continue to meet your financial obligations, including mortgage payments and other household expenses.
Buying an Investment Property with a Family
Buying an investment property with a family is a significant decision that requires some careful consideration. One of the key aspects is timing—understanding when to buy or sell property can have a substantial impact on your family finances.
For families, especially those with young children, timing can be influenced by various factors, including you and your partner’s job stability, the availability of suitable properties, and current market conditions.
But we always say, “the right time to buy a house is as soon as you are able to”! You can find out more about why we think now is the right time to invest here.
Managing your existing investments is equally important. As your family grows and your financial priorities shift, it may become necessary to reassess your property portfolio.
For instance, some families might consider selling an investment property to free up funds for other needs, such as education expenses or upgrading their own family home. However, selling your investments can have tax implications, such as capital gains tax, which must be taken into account.
Selling property or shares may also affect your eligibility for government benefits, like childcare subsidies and paid parental leave, which are often based on income and asset levels.
Rentvesting and Family Mortgage Options
The concept of “rentvesting” has gained popularity as an alternative approach to property investment. Rentvesting involves renting a home in a desirable location while owning an investment property in a more affordable area. This strategy allows you to live in your preferred location (like close to your child’s school or your work) without the financial burden of buying property there, while still building wealth through other property investments.
Rentvesting offers several benefits, including flexibility in your living arrangements and the potential for higher returns on your investment properties in growth areas. However, it can also come with challenges, such as managing both rental and ownership responsibilities and the potential for market fluctuations to affect your rental yields and property values.
Given the risks of property investment and the significant financial commitments involved, it is ideal for you to consult with financial brokers or advisors first. Our property investment professionals can provide you with personalised advice based on your financial situation and long-term goals, helping you understand and make the most of rentvesting and other property-related decisions.
A mortgage broker’s guidance can teach you how to manage your family finances so that they align with your financial objectives and minimise the risks for your family.
Motherhood and Money
Mothers often face unique money challenges, particularly as they more often step out of the workforce to care for their children. This career break can lead to a significant loss of income, which not only affects their immediate cash flow but also has long-term implications for financial security.
One of the critical areas impacted is Superannuation, as the Government contributions are typically based on your earnings. A reduced income during your children’s early years can lower superannuation savings, which can affect a mother’s financial independence and retirement plans.
This phenomenon is part of what is known as the “motherhood penalty,” where women, especially those with children, earn less over their lifetimes compared to men. This disparity is not solely due to career breaks; it is also influenced by societal expectations and workplace practices that often undervalue caregiving roles and a woman’s need for extra flexibility to meet her caregiving needs.
A woman may not choose a career if it won’t allow her flexible hours or working locations, preemptively knowing she will take on most of the caregiving responsibilities later in life. When choosing employees for promotions, women are often subconsciously overlooked as it is society’s expectation that she will have more responsibilities at home.
The motherhood penalty can have long-term effects, including reduced retirement savings and an increased risk of poverty or homelessness, particularly for single mothers or those who experience relationship breakdowns later in life.
The Best Way to Manage Your Family Finances
Planning for your family’s future is a critical aspect of managing your family finances, especially during challenging times. Despite the pressures that you face—whether it is the high cost of living, unexpected expenses, or the financial impact of raising children—the best way to manage your family finances is to maintain a forward-thinking approach.
Leveraging your available financial resources, such as your home equity or cash flow, can be a strategic way to secure long-term investments. For example, you might consider using the equity in your family home as collateral for an investment loan, allowing you to invest in property or shares.
Understanding and managing your cash flow is another important part of how to manage your family finances. Regularly reviewing your income and expenses can help you identify areas where you can save or reallocate funds towards investment opportunities. Setting yourself clear financial goals, such as saving for retirement, funding your children’s education, or buying an investment property, provides a roadmap for making informed decisions.
It’s important to explore various investment options, including property, shares, and managed funds. Each option carries its own set of risks and potential returns, so it’s crucial to thoroughly research and understand them. Diversifying your investments can also help mitigate risk, as it spreads your exposure across different asset classes.
Ultimately, making informed decisions is key to achieving financial stability and growth. This involves staying informed about market trends, understanding the implications of different investment choices, and being aware of the broader economic environment.
Check out Ana Kresina’s Kids Ain’t Cheap which is an easy-to-understand book that helps you prepare financially before you become a parent for the first (second or third) time. It shows you how to mitigate risk and reduce financial stress.
It is also advisable to consult with our financial brokers who can offer expert guidance tailored to your individual circumstances, helping you along your financial journey with confidence.
