How Families Can Plan for Large Expenses
Family life is expensive; there’s no two ways about it.
The average cost of raising a child to 18 in the UK is £250,000 for couples, £290,000 for a lone parent. And that’s before you consider your general expenses, from your mortgage to the cost of running a car.
Large expenses always seem to land together, too, or at the worst moment. Planning for these payments, including preparing for the unexpected, will help them feel more manageable alongside your essential living costs.
- Set clear financial goals
When large expenses exist as vague future costs rather than defined targets, they can feel overwhelming. Identifying exactly what you’re saving for, how much you’ll likely need and when you need it by, makes it much easier to manage the load mentally. This is because it enables you to have the bigger picture and put together a practical roadmap to help you reach your aspirations.
Separate the expenses into categories, including necessities and nice-to-haves. This can help guide your focus, so you direct your money towards what matters most.
- Create a comprehensive budget
A detailed budget is the foundation of great financial planning. It clarifies your income versus your outgoings, so you can see what you’re able to realistically afford at any given time without dipping into your savings or getting credit.
If you’re new to budgeting, start by listing all sources of income alongside regular spending, including monthly essentials like mortgage or rent payments, utilities, food shopping, transport and subscriptions. Remember to keep some money back for non-essential spending and savings.
Once you can see where your money goes each month, it’s easier to identify opportunities for cutting costs. This will help you channel more funds towards the larger payments you’re saving for.
- Prepare for the unexpected
Some of the large expenses you face as a family are unwanted and arrive unexpectedly. A broken car or urgent home repairs require immediate attention and can place pressure on your finances. You can’t plan for these specifically, but you can take measures to prepare for them so you’re better able to manage them alongside your budget when they do arise.
Building an emergency fund is the first port of call. This should be around three to six months’ worth of living expenses. You should also know what your borrowing options are, and how much you could reasonably borrow and keep up with the repayments. Explore different borrowing options like credit cards and bank loans and use tools like a loan calculator to get an idea of what the minimum repayments would be with different amounts, loan lengths and repayment terms.
Having this information to hand will help you make informed decisions that fit your budget at speed, so you can solve urgent problems without endangering your financial wellbeing.
- Build dedicated savings pots
Having separate savings accounts for your goals is a sensible strategy. This gives you immediate visibility of how far you are from each target, making it easier to monitor progress and stay motivated. Dedicated savings pots also reduce the temptation to spend money intended for another purpose.
Setting up automatic transfers into your savings accounts for a date shortly after payday is an easy way to stay committed and consistent. Be careful to consider what you can actually afford to put away, allowing a buffer with your monthly spending calculations.
Over time, even modest monthly contributions can build into a useful fund, especially when you consider compound interest. This will help you cover large expenses when they arrive without feeling a negative impact on your day-to-day living.