There are times in our life when we are spending far more than usual or earning less than we normally do; it is good practice to prepare for these moments in advance.
We all know that life has many twists and turns, ups and downs and is anything but straight forward.
Some of these things are unforeseen; however there are events for which we are able to plan.
There are periods of our life where we know in advance that our circumstances are going to be different, whether that be seasonal changes or lifetime events. By preparing for these times in advance, we are likely to reduce the financial stress.
Year to year, there are moments that cost us more.
The Christmas period is probably the most obvious time where our spending increases. School holidays are another period where, for many, there are additional costs; things such as increased child care, increased activities and, for some, reduced work hours.
Despite knowing that these periods are coming, many try to absorb the extra expenses into regular spending.
This often results in shortfalls, which creates financial stress and can lead to the reliance on credit cards and alike.
These periods can be planned for. If we allocate funds throughout the year to be used in these periods, we can remove the stress.
Essentially, we are averaging our yearly expenses and planning accordingly.
The same can be done for periods in our life where things are more difficult financially.
In my opinion, the most difficult time is when we start a family.
During this period, most families have one of the parents not at work or working in a reduced capacity.
Once they return to work, many require child care which is quite expensive, even with the government assistance.
In the months leading up to this, if a family is able to create a nest egg to get them through this period, it will greatly reduce the financial stress.
Private school is another example. We all know that private school fees are very expensive, for many this is considered a worthwhile expense.
If you start saving for these fees well in advance, then you can average these costs over an 18 year period instead of a six year period.
Putting away $100 per week from when your child is born until they complete high school is a lot easier than trying to find $15,000 per year (or $300 a week) for the period they are at high school.
Planning in advance can take the pressure off for these known periods are a little tougher than usual and avoid the potential pitfalls that financial pressure creates.
Food for thought.
Alex McKenzie, Future Financial Services
Alex McKenzie is a financial planner, and the owner of Future Final Services in Penrith. He is a graduate of Western Sydney University.