How to prioritise your family’s financial needs

Many parents find it challenging to manage income, expenses and investments within their family. It’s difficult to remain objective when allocating your resources, especially where your children are concerned.

We consider some methods for removing the emotion from these decisions, in order to set up some sound financial plans.

Start at the beginning

Your first step is to determine your total annual income advises Cherise Erasmus, financial para-planner at Crue Invest (Pty) Ltd.

“Where income is received from fluctuating or seasonal sources, such as your own business or commission, it is important to look at the revenue over a full year. This will help you plan more accurately, especially when lumpy expenses might occur.”

Create a family budget

A budget is often perceived as restrictive and limiting, but setting clear financial boundaries can bring unexpected freedom.

Once your total income has been established, you can weigh this up against your expenses. Bank statements are a good starting point for establishing these.

Erasmus says that transparency is extremely important.  “With an open household budget, you will be able to avoid any unnecessary feelings of resentment, especially where someone feels that they contribute an unfair proportion,” she explains. 

According to Catherine Normand, an educational psychologist, children should be involved in the process. “This involvement should be age-appropriate, and not frightening.”

She notes that budgeting is critical, irrespective of income level. “It teaches respect for money and the resources that you have available,” she explains.

Discuss the facts

Parents tend to try to protect their children by keeping financial information from them, but this often has the opposite effect. It’s better to discuss your challenges and plans, if only in brief, so that your children know where the family stands.

“Parents don’t always realise that their financial concerns, stress and worries filter down to the children. Young adults and students often express feelings of guilt regarding the financial burden they put on their family,” Normand says.

She notes that high schoolers and students are extremely conscious of their parents’ financial pressures. When children are involved in financial decisions, they feel empowered and less threatened.

Another temptation for parents is to incur expenses that are beyond the family’s means. To prevent this, it’s helpful to distinguish between wants and needs.

The following examples may help you to differentiate between these.

• A R5,000 pair of sneakers would, in most cases, be a want rather than a need. A R500 pair, purchased on sale, would be a better alternative.
• A study loan, while a form of debt, can provide cash flow relief, and encourage a student to take ownership of their finances.
• A weekend away might sound like a luxury, but for a parent on the brink of burnout, this might be a necessity.

Saving money as a family

Based on your budget, your family can decide how much needs to be saved. “There is no rule as to how much you should be saving,” Erasmus says. “Consulting a financial planner can make things clearer.”

“Try to avoid listening to ‘braai talk’ and rather spend time understanding your own personal needs,” she says.

“Establishing a purpose for the investment - such as saving for retirement, tertiary education, or maybe an overseas holiday - will determine the type of investment, as well as the funds allocated.”

Normand adds that what you work and save towards, you will ultimately enjoy.