ADVISORY COLUMN: On becoming a parent
SO YOU are a parent now. What a difference it makes to your entire life and relationships, and especially to your pocket and everything related to it, so let us see how a good financial plan fits into your new situation.
An addition to the family adds significantly to its expenses – for childcare, food, clothing, healthcare, education, to name a few. These new expenses inevitably affect the budget and may make it necessary to increase income, recast the budget, or even reduce savings, as undesirable as that may be.
Nonetheless, savings should be front and centre of your financial plan. Move to an automatic means of saving if you are not doing so now. Manage the risk of encroaching on your savings by being deliberate in how you spend to give all the comforts to the newest addition to your family. Just remember that much of what you spend on for your growing child will soon lose their usefulness to the child. Temper your spending.
Liquidity takes an even higher
position in the finances of the family as the likelihood of emergencies becomes more real. Thus, if there is a time when an emergency fund is needed, it is that time.
Medium- to long-term savings also become important as the need to prepare for school at all levels, including the tertiary level, takes a prominent place in the line. To the extent that medium- to longterm investment instruments are available, they should be included in the investment portfolio not just for income, but for capital appreciation. Pay attention, too, to financial products geared at providing funds for education, but seek unbiased advice before committing yourself to any product.
If you have a good health insurance plan, there should be room to add the newest member of the family. You will need it even if your child is healthy now.
Take a very close look at your life insurance programme if you have one in place, and put one in place if none exists. You would not want to leave your child to have a rough life if you happen to exit this life early. Life insurance provides a financial safety net that makes money available to meet the critical expenses of beneficiaries and allows your loved ones to enjoy some level of financial independence in the event of your premature death. It cannot provide physical presence but it can provide bread. It also provides funds to address testamentary expenses and helps to reduce the risk of depleting your estate.
Consider adding disability insurance to your portfolio. It can provide some income for a set time in the event of disability caused by injury or sickness.
If you have a will, be sure to update it, and if you do not, make one. Set out your wishes for how your resources should be distributed and spare your child, in particular, from the distress which is often experienced when there is no will – though not even that is sufficient to keep some families from turmoil after the death of a family member.
Be sure to name a trustee in the event of death occurring before your child attains the age of majority. A trust is a useful tool for establishing when and how your resources should be used for the benefit of your child in the event that life turns in such a way that someone other than you must carry out that function. It may also be appropriate to name a guardian to assume responsibility for the care and protection of your child in the event of the death of the child’s parents.
Taking a longer-term view of your own life, ensure that you have a retirement plan in place to ensure your own financial independence in later years and, importantly, to avoid becoming dependent on your child at that time.
If you have just joined the fraternity of parents, recognise that you have just started a long and challenging journey that requires careful attention to every aspect of personal financial planning.