Date: May 30, 2016

Financial Strategies for Big Families

Families come in all shapes and sizes. Some couples decide to have lots of children, but other scenarios that create big families are also possible. You might share your house with several generations or have “yours, mine and ours” kids after a second marriage. Whatever the make up, big families require more cash than small ones, and budgeting, investing and savings can be a challenge. Here are a few tips to help you get organized.

Talk Through Finances, Including Resources and Priorities

Studies suggest that it’s harder for a couple to talk about money than sex, but communication about finances is important in any family. It’s especially important for couples with large families to discuss their spending goals and priorities because there are so many competing interests to consider.

Although small families usually include only two adults, big families may include several generations, each with its own financial outlooks and goals. A list of financial strategies for big families must include candid financial discussions covering income, debt, budgeting and priorities for all family members. 

Sometimes it works best for the adults in a family to agree on priorities, then turn the finances over to one person to manage the money. Income contributions could be deposited into one account, and the person selected to handle finances would then make all expenditures.

Consider Your Budget a “Backyard Fence” Containing Your Finances

“A large family needs a budget,” according to Los Angeles financial planner Shirley Chin. “You may not be able to organize a large family’s monthly spending with the same precision that a couple can, but you can and must set spending perimeters.” Some big families liken their monthly budgets to backyard fences that allow kids and pets room to roam within a safe, predefined space. Budget “fencing” helps keep family spending in safe territory. 

According to Chin, the idea is to be sure that your income is used to pay your most important expenses each month, while building in room for occasional splurges. Having a budget and sticking to it means you may have to say no to some indulgences. For example, some large families plan their meals and save eating out for special occasions.

Prioritizing Expenditures Is Essential for Big Families

Anyone who creates a budget necessarily prioritizes, but the looser style of budgeting that often works best for a large family makes prioritizing more important. This is critical if family income varies from month to month, such as when some earnings come from on-demand or freelance workers. 

First, money must be reserved to pay for basic necessities like food and housing — mortgage or rent, plus utilities. Consider making planning for the future your second priority. This includes saving for your retirement with an IRA or 401(k) and putting money aside for your children’s education. 

If you don’t make savings and investment accounts a priority in large families, you may never contribute to them at all. Putting off these deposits until you have spare money is not a good idea in large families with so many different financial needs. Unless you pay yourself first, you may end up without any retirement or college savings.

Plan Ahead for Emergencies and Hard Times

The best of budgets can get thrown out of sync when an emergency happens, so large families need to think ahead and plan for hard times, such as job loss or suffering a disability that limits work. First, start an emergency savings account. Add a set sum every month until the account contains sufficient funds to cover four to six months of your family’s living expenses. Then be sure to reserve the funds for that purpose.

If one or two individuals earn most of the income used to support your large family, you’ll want to consider life insurance. Term life insurance — the kind that provides coverage for a set time then expires — may be the best choice. You’ll want to purchase enough to cover that person’s income for five to 10 years.