Ask Paul: What's the best way to invest while raising a child?

Dear Paul,

I'm 37 and am the main household income earner (close to $100,000pa gross) and my wife, 32, has a net income of about $35,000pa.

I have been salary sacrificing 10% of my income over the past 10 years, and my super is in a tax-deferred fund with about $210,000. 

I've contributed and invested consistently over these years in my share portfolio, which currently sits at $140,000, with an average return of 21% since inception (eight years).

I've invested mostly in active managed funds and exchange traded funds that are diversified across industries and countries, as well as individual holdings on the ASX.

My wife has a small portfolio and super, and our savings are in our multiple offset accounts for our mortgage. 

We estimate we have about $85,000 left to contribute to our offset before our interest is zero, which could be another six years. The only debt we have is our mortgage.

We pay off our credit cards in full and have owned our car outright since day one. 

My wife and I are planning to start a family, and we are not sure how to navigate investing for our future while raising a child. How should we go about investing while raising a child?

We are averse to risk and debt, and we feel we will have to reduce our investment contribution to support our child (we are more than happy to!). - Eric

Well, Eric, you and your wife are models of financial literacy. At ages 37 and 32, I rarely see a couple so well prepared for a family.

In fact, I am rather embarrassed! When Vicki and I had our first child, we were around 32.

My start-up business, Ipac, with my four partners, was paying us a very modest salary. Thankfully, Vicki had some maternity leave as a teacher (it was not very generous back in the 1980s) and we had no savings and no super, but our mortgage was not too big, which is not surprising. Our little semi-detached home cost us $90,500.

When interest rates started rising, our solution was to sell our car.

Fortunately, Ipac was on a good growth path so we were able to increase our salaries fairly consistently, and from about 1991 interest rates fell very strongly, so we started to make good progress towards financial independence from about 1994.

By then we had three kids and, thankfully, had a new car.

My point, though, is that I don't think there is ever a good time financially to have a child. It is great to be prepared, which you are. You have such a great base of assets, I would not be concerned if you had a few years where you could not save much.

But if you can, in your shoes I'd be topping up super.

You pay a reasonable amount of tax and the 15% tax on salary sacrifice will be hugely beneficial to you and your family. Sure, you can't touch it until retirement, but with your mortgage down to $85,000, a nice share portfolio outside super and your super, unless you see a need for more funds outside super, it seems to me super is a good way to go.

Money is just money. It does provide choice, but that is about it.

A family, however, is far more than money. As we approach 70, with our three kids, their partners and our four granddaughters, they provide us with more joy than money ever could. Mind you, we do appreciate being able to afford a car!

I wish you and your wife all the best with your family plans.

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