Starting a family is a wonderful and exciting chapter in anyone’s life. It also means adjusting to a whole new lifestyle, so a little planning can go a long way towards helping you remain in control of your money. The birth of your first child can put your financial plans awry if you don’t have a plan, especially if like many first-time parents, you don’t know where to begin. We’ve put together a few financial tips for soon-to-be parents to help them navigate this new chapter & get prepared.
7 Top Tips for Parents
Appoint a Guardian for your children and make a Will
Nominate a guardian(s) to care for your children in the event of anything happening to you both and include this in your Will. As your children get older and to account for changing circumstances you should review your nominee.
Draw up or update your existing Will, this allows you to specify how your assets will be managed and used to benefit your children in the future. In addition, name an executor of your Will. This person will be responsible for dealing with your affairs, paying bills and expenses, and making sure your property is transferred to the beneficiaries named in your Will.
Once baby arrives you should put measures in place to ensure baby’s future is secure by getting life insurance, adding baby to your health insurance, and/or taking out income protection.
You should consider what your family will require in the long term to help minimise major disruptions to their lifestyle if one of you dies or were too ill to work. Don’t underestimate the need to insure your spouse who stays at home or earns less income. Childcare needs and other day-to-day activities change when a parent dies. This can put a lot of strain on the surviving spouse both financially and emotionally.
Life Insurance provides financial security to your family in the event of your untimely death. Your beneficiaries are guaranteed to receive a tax-free lump sum that can be used to replace your income, pay bills and clear outstanding loans. Life Insurance policies may be liable for inheritance tax as part of the total net value of all the assets received by the beneficiaries unless you have a Section 72 Life Insurance Policy. Talk to a Financial Planner about your options.
Now’s the time to start saving for their education
The sooner you start saving for your child’s education the better.
Consider setting up a Regular Saver Account and lodge an amount each month. You can also utilise the €3,000 small Gift allowance to minimise Gift Tax charge. Each parent can gift up to €3,000 to each child tax-free within a 12 month period.
An Post – Childcare Save Account. Interest rate of 0.15% p.a., subject to DIRT. A convenient account to save your Child Benefit payments. Childcare Plus Investment, allows you to save for 1-year leave for five years, Interest 5.5% , AER 0.98%, tax-free.
For more long term investments such as saving for college you should consider:
- Stock Market Investments
- Investment funds
However such funds carry some financial risk so make sure you do your homework in advance, know how much risk you are prepared to tolerate and talk to a Financial Planner.
Draw up a monthly budget plan
Your expenses and income will likely change when you have a child, but your budgeting plan doesn’t have to. Evaluate what your monthly budget looks like now. Set out your income, monthly expenditure and savings. Once you’ve done this you might be able to identify areas you can cut costs and bolster your savings.
If you’re new to budgeting, our rule of thumb for effective budgeting and financial planning is 50/20/30,
- 50% of your income should be earmarked for essentials. These include your mortgage, utility bills, food, childcare, medical insurance, income protection, etc
- 20% of your income should be earmarked for pension contributions & savings, including debt payments – credit card, rainy day fund, investments. Don’t forget the valuable tax relief that you will earn on your pension savings.
- 30% of your income should go on personal needs and enhance your life, so things like entertainment, hobbies, interests, improving your home, etc.
Put a list together of what you need for baby and ask friends and family, when giving presents, for less expensive items or to pool their money together to get what is needed for baby.
Ask friends and family for vouchers to restaurants, theatre,s or cinemas for birthdays and Christmas so by the time baby comes, you have enough gift cards to go out and enjoy yourself on occasion. You can look forward to time together without having to worry about stretching your budget for date nights.
Boost your emergency savings
Set a little bit extra aside each month for emergencies. You might need to tap into this fund if you need to take extra parental leave. Consider taking out income protection to safeguard your income should you be unable to work due to long-term illness or injury.
The size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, but the rule of thumb is to put away at least three to six months’ worth of expenses. You should save at least €100 per month or 10% from each paycheque if possible until you reach your goal. Once you achieve your objective, you can stop contributing. Review your emergency fund from time to time to account for increases in living costs and other financial obligations.
Talk to each other regularly about your finances
Stress over money can multiply when you have children so talk to your partner, set out your financial goals, and make decisions together.
Finally, it’s important that you stay on course with your own Financial Plans
If necessary reduce your pension payments, but don’t cancel them. With all of the new baby expenses adding up, it can be challenging to stay on track with your own financial and investment plans. It’s a common mistake for parents to focus their finances around their children at the expense of their own retirement savings.
We strongly advise that the best way to take care of your children is to take care of yourself. Teach your kids about Financial Management and the value of money. Show them how you prepare and save for the future. You should find out in advance of baby’s birth what social welfare and tax benefits you may be entitled to, as well as any employee, benefits your company offers.
A qualified and experienced financial adviser can:
- Help you understand your needs, plan ahead and become more financially secure
- Save your money and time by shopping around on your behalf
- Help you understand the risks involved in certain financial products
- Recommend the most suitable products for your needs