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Over the past few weeks we have examined how sound financial planning throughout life can put people on the path to financial security and safeguard their savings. In this week’s post of our ‘Financial planning for a better life’ series, we will look at how financial planning for families is important for providing children and families future financial wellbeing.
The happiest days
There’s no doubt that having children defines people more than anything else in life. There is no greater joy than that of a parent seeing their newborn baby for the first time. Life as they know it will never be the same again. With the new arrival comes great joy and great changes; a change in how one views life and to how one plans for the future. Having children and providing for them turns a family’s finances upside down and requires a review of financial arrangements and plans for the future.
Personal spending is now household spending
Having children has a knack of taking the ‘personal’ out of ‘personal spending’. Parents have to consider that now there are more mouths to feed and more bodies to clothe and provide for. These costs soon mount up and often come as a shock to new parents. The free spending that many unencumbered couples often enjoy frequently comes to an end when children arrive. For many parents, this means that budgeting and re-evaluating spending habits is essential. Budgeting for a family is very different to budgeting for an individual or a couple – it’s now a household budget.
Medical insurance is a priority
One of the first priorities when children arrive on the scene is to add them to your medical insurance policy. Young children, especially once they start nursery and kindergarten, are prone to illness and trips to the physician are common. Many are minor ailments and childhood diseases but unfortunately more serious issues can crop up. High quality treatment, even for children, can be expensive so medical insurance is a necessity in most cases.
Medical insurance helps protect a family’s wealth as well as their health so every family member should be covered.
Ensure your family is protected
No one likes to think about it, but what if something should happen to the family’s main income earner? There is always a risk of a tragedy and in the event of the worst coming to pass, the family still needs to be provided for. Life insurance is absolutely crucial to ensuring the family remains financially secure in the event of the death of a parent. Ideally, both parents should be covered.
There are other risks to a family’s financial security that can be covered by various types of insurance. Accident and disability cover, critical illness and income protection insurance can all provide an extra layer of security to give additional peace of mind.
Reassessing investment risks
The level of risk exposure in savings and investments often goes unnoticed when a child comes along, but certainly warrants attention. In general terms, younger and single people can afford more exposure to risk but once children come into the picture the risk profile of investment should be reassessed to ensure it meets the family’s requirements.
Planning for education
Even if schooling is free or subsidised by an employer, this is rarely the case when it comes to university. Higher education is becoming increasingly expensive and is now the single biggest expense in a child’s life. Advanced planning is essential in order to avoid the crushing burden of the cost of university when the time comes around. It is recommended that parents start an education savings plan from birth to get the maximum value of compounded interest to help their children through college.
Don’t neglect your own financial planning
Despite financial demands of children, it is vital that you do not neglect your own financial planning for retirement. Parent cannot afford to take an 18 year break from putting money aside for their old age while they bring up their kids. Work out a way to both meet the financial requirements for the family and to keep putting money into a pension.
Update your will
It is also important to properly ensure your will is updated to take into consideration your new family circumstances. The last thing a family needs is for an estate to be tied up in probate for an extended period in the event of death. For expats in Asia, it is especially important to be aware of the laws regarding wills in their host country. It may be essential that a local will is drawn up. Seek legal advice to clarify the situation as it changes from country to country.
Starting a family is a wonderful time in anyone’s life. However, it is also a time when smart decisions and changes ought to be made. People’s priorities shift greatly at this stage in life and providing for children becomes the main concern. Providing for your family and children is made that much easier by discussions and making sound financial planning decisions.