Young families, household budgets and how to find money to invest

In another article, we’ve told you the importance of beginning to invest when you’re in your twenties and the difficulty that many people say they have finding the money to do so.

Then you decide to have children and discover that the serious juggling of family finances has only just begun. However, the expensive days of buying diapers and formula don’t last forever. And because you’re likely not in your peak earning years yet, in the future, the financial juggling will get likely easier as your income increases.

And like the pride you feel as your little one grows and learns to walk and talk and check off life’s milestones, you’ll gain confidence and enjoy a deep sense of accomplishment as you achieve your financial goals.

Why it’s so difficult to find money to invest

There’s always been a cost to raising children. Various sources will tell you that from birth to 19 years-of-age the total will come close at to $250,000. But why is it so much harder now than it was a generation or two ago?

According to MoneySense magazine, 70% of families in the early 1970s had just one income earner. So when the family had an addition, the only financial hit they experienced was the actual cost of raising each child. Today, both parents work in 70% of families. When they have a child, they’re likely to take two financial hits; the extra expense of raising each child, plus a huge potential decrease in income as one parent takes time off work.¹

Knowing this, how do you get your head around paying for everything you need to raise your child, and still set aside money for the future?

Start by making a household budget

You’ve got to know where you are before you know where you’re going. Make a detailed family budget that includes all your regular household expenses, plus all the new “kid expenses,” as much as you can predict.

Make sure you adjust your income to what it will be once either parent is on leave. Once you subtract the expenses from the income, you’ll begin to get an idea of how much financial flexibility your family budget has.

Set financial goals and set priorities

Next, write down your family’s financial goals, such as saving for a vacation, retirement or a child’s education, creating an emergency fund (3 to 6 months’ income), paying off debts, etc.

Now, prioritize these goals by thinking about which are basics and which are extras, which are must-haves and nice-to-haves, which are short-term, medium-term or long-term goals.

If you find the entire process too daunting and you think a knowledgeable, impartial third party could provide you with a fresh perspective, you can contact a Quadrus investment representative for help.

Make the most of “matching” investments

If you’re saving for a child’s education, begin with a registered education savings plan (RESP). This is a way for your kid to get money from the government.

For every dollar you contribute, the federal government’s Canada Education Savings Grant (CESG) will chip in 20¢. Over time, the CESG portion could add up to $7,200. Our RESP article has more details.

One more education savings strategy is to get family members to help you. If they’re in the habit of giving your children cash or gifts for birthdays and other special occasions, ask that they contribute to their RESP instead. Rather than giving a forgettable toy or cash that may be spent on junk or candy, a gift to an RESP will last a lifetime.

If you’re saving for retirement, prioritize contributions to your company’s pension plan. A common example is a workplace registered retirement savings plan (RRSP), where your employer matches your contributions.

Many don’t take advantage of this. Experts say at least 40% of employee match contributions go unused.² Taking advantage all your entitled employer contributions could really help your retirement, especially if you start saving when you’re young.

Find ways to save money

Once your children have outgrown clothes, toys, etc., sell these items and use the money to buy new things they need, or add the money to your savings.

When it comes to sports equipment, musical instruments, laptops, etc., consider buying used instead of new. You can also ask friends or relatives with older children if have similar items they’ve outgrown. Once again, you can turn the money you save on these purchases into additional savings.

Take advantage of tax credits and government benefits

You can claim costs for child care, medical expenses and adoption-related expenses on your income tax. If you’re fortunate enough to receive an income tax refund, try not to spend it on something frivolous. Instead, use it to pay off debt or top up one of your investments.

And remember that the federal government paid families $22 billion in children’s benefits in 2016-2017.³ Get your family’s fair share by applying for the Canada Child Benefit for children under 18.  If your child qualified for the child disability benefit, apply for it as well.

Talk to a Quadrus investment representative today to find ways to save money and get that money working for you to help achieve your financial goals. Your future self will thank you.

¹ Duncan Hood, “The war on the family”, MoneySense, Sept. 28, 2007

² Barbara Shecter, “Leaving money on the table”, Financial Post, May 19, 2014

³ Annual Financial Report of the Government of Canada Fiscal Year 2016–2017, Department of Finance Canada