There is no denying that a new baby is a game changer for all rookie parents. When you become a mum or dad you take on the responsibility for the wellbeing of another human. That involves not just the immediate challenges of keeping your baby fed, clean and physically safe at all times but also ensuring that he or she is taken care of financially both now and until they come of age (although, of course, many parents support their children financially way beyond 18).
We have pinpointed five must-dos for all parents looking to safeguard the financial future of their child.
Parenthood is often the wake-up call many people need to get their finances in order and start budgeting correctly. When you only have yourself to support, it seems ok to wing it through the months hoping that you spend less than you earn but a child changes everything. Babies may be tiny but they are surprisingly expensive, requiring a cot, a buggy, regular new clothes, nappies and food, all at a time when household income often falls because a parent stops work to care for the baby or disposable income falls because childcare needs to be paid for. Work out a cash flow analysis by documenting your income against your fixed and variable costs and, if necessary, identify areas where savings can be made to enable you to cover the extra expenses you now have.
As a parent, the thought of your child being orphaned is horrendous. Fortunately, the chances of that happening are low however the possibility does exist and provision needs to be made. There are two things you must do regarding your estate planning.
Firstly, you need to officially nominate a guardian who would be responsible for your child in the event of your death. If you fail to do this, the decision is left to a judge, who might have a different opinion to you on what is best for your child.
Secondly, you need to make a will. Do not assume that your child would inherit your estate. Making a will is the only surefire way to ensure that your wishes are known and adhered to.
While we are on the unpleasant subject of dying, new parenthood is also the time to sort out your life insurance. If you don’t have any, you’ll need to put some in place and if you do have life insurance, it will probably need reviewing. You should take out sufficient cover to maintain your family’s standard of living if you were no longer around to provide for them. It can be a tricky figure to work out which is why we always advise consulting a professional financial planner for assistance.
Education fee planning
It’s the parenthood cliché you’ll hear a thousand times over but before you know it that tiny bundle will be taller than you, done with school and heading out the door into the big wide world. If university is on the cards – and it is the most common way to give your child a head start in the jobs market – fees will need to be paid. It is far less painful to spread the six-figure cost of a university education over the 18 years or so between birth and starting a degree than having to cough up the full amount when your child turns 18. Infinity have helped thousands of parents with education fee planning and would be delighted to apply their expertise to your unique situation.
Your child’s financial future is important but so is yours. A common mistake many parents make is to stop paying into a pension to cover the costs related to their child. Do not do this. It is important that you continue your own retirement planning to ensure your financial independence once you retire. In a roundabout way, this is a great gift for your child too as it will relieve them of the burden of having to support you in later life although they won’t appreciate this particular gift for a long time! If you are not already saving towards retirement, you need to factor this into your budgeting and begin now.
New babies can be all-consuming but make sure you carve out time to get to grips with your finances and address the five areas outlined here. Getting everything in order will give your child the best possible financial future and you’ll also be providing a brilliant role model for them to emulate and pass on to future generations.
If you would like any assistance with addressing any of the above areas of your financial planning, our professional advisers are here to help. Many of them are parents themselves and all of them have a wealth of experience assisting expatriate families in Asia with holistic financial planning to meet all their goals. Contact us to arrange an initial chat.