Three financial tips every working parent needs to know

Raising children is no easy feat and it can get even trickier when you have to balance work, parenthood and finances.

Regularly saving for your child’s or children’s future might be high on your to do list, but it shouldn’t be at the sacrifice of your own financial well-being. It is important to prioritise your financial independence so that you can help your children when you can afford to.

Having a rainy-day fund is a good idea for those day-to-day unexpected emergencies, like if your microwave breaks. But it’s also important to have some savings just for yourself. Say your relationship breaks down. Do you have the means to move on if needs be? A separate pot of savings can help ease your mind and retain your financial independence.

Here are three things to think about to gain greater financial independence.

1. Start investing as early as you can

Given the cost-of-living crisis and the negative effects of inflation, you might think investing is too risky and cash is the safest option. However, if you start early your money has the best chance to grow over time.

And the sooner you start, the better. Typically, saving small amounts over a longer period can make a bigger difference than saving larger sums later in life, even if the total amount you’ve put in is the same.

Take this scenario - you put 200 units of local currency into an investment every month from the age of 45, by the time you’re 65 it could be worth more than 80,000 units- assuming an annual growth rate of 5%. But if you start to invest 100 units every month from the age of 25 at the same growth rate, by the time you’re 65 it could be worth more than 150,000 units. It’s important to note that this is just an example to show the power of regular compounding; you may get back less than you originally put in and the growth rate isn’t guaranteed.

2. Regular saving is your friend

Market highs and lows affect the price of your investments and are a natural part of investing. Investing regular amounts every month can take the guess work out of trying to time the markets and catches the high points as well as the low. In financial terms, this is known as cost averaging.

When you’re investing, remember that putting away even small amounts of money can make a big difference as long as you do it regularly and give your investment plenty of time. And while there are no guarantees, more time can mean more potential for growth and more opportunities to reinvest any money from your original investment. 

3. Don’t forget your retirement fund

We’ve been covering short-term savings so far. Your retirement fund is one of the most important long-term assets you have in your lifetime. However, there are barriers that may prevent a working parent from growing their retirement fund. These may include taking a career break after having a child, not getting pay rises during the time you’ve been out of the workplace or having to pay for expensive childcare - all of which can eat into how much you can contribute.

So, it’s good to find out how much money you need to have in your retirement fund to live out the retirement you want for yourself. You can use a retirement calculator to see how much you need to save.

If you’ve opted for a career break to look after the kids and your pension has taken second place, there are things you can do to catch up. Ensure you maximise any employer contributions or pay in an extra 1% to your company pension (if that is an option where you are) - you’d be surprised what a difference it can make over time.

Then, if you have cash to spare, you might even consider paying into your own personal retirement account on top of a company retirement program. Your future self will thank you.

As a working parent, it’s only natural to think of your children. But it’s important that you’re financially secure and financially independent first - that way you and your children can thrive.