In this blog post, we will be sharing our top 5 financial tips for new parents to manage and take control of their finances. Trying to adjust to life after the arrival of a newborn it is hard to focus on anything other than what is needed today or this minute or right now for any family! Whereas prior to the newborn you may have been able to plan your day or even just your morning, your time is now focused on your baby’s patterns and how unpredictable they are.
However, I believe that this life event is in fact the very time a family should be addressing some key financial planning issues. There is a new mouth to feed, nurture, protect and provide for.
Here are the 5 actions you need to put in place today to improve your finances as a parent:
Make a Financial Budget
The first thing you need to do is track your income and spending. This can be done by printing off your last 3 months’ bank statements. To determine whether you are living within your means or over budget, you should create two columns: on one side write down all the income that comes into your family each month and on the other side detail all direct debits. Work out what is spent (on average) on the necessities e.g. weekly food shopping, nappies, formula etc. Also include a budget for recreational you do during the week for fun things like a restaurant meal, a night out at the cinema or even the cost of a babysitter while you and your partner are out. You should include a fixed amount for a regular savings account and review your budget every 3 months or if there is a change in your circumstances.
How to Start a Savings Plan
It may seem like a difficult time to start putting money aside but now is the right time to start building your savings. You should have an emergency fund (typically 3 months’ salary) to cover the cost of unforeseen expenses such as repairs to your car or domestic appliance.
Beyond that, you should be planning for medium-term goals like your child’s education needs, a family holiday or home improvements.
The most effective way to save is to add an online regular savings account to your day-to-day bank account and have a monthly amount transferred by direct debit. One suggestion would be to have the direct debit start around the same time as the Child Benefit (€140 p.m.) goes into your account.
Rates of interest are so low at the moment that it makes little difference who you save with but try and restrict access to your account by at least 7 days. That way you will find it harder to spend and will have more money to call on when you really need it.
Take out Life Assurance & Serious Illness Cover
What happens if family income stops due to the death or illness of a parent you need to have enough cover in place to maintain the standard of living within the family.
The type and amount of cover you need is dependent on several factors e.g. existing cover, mortgage repayments, and benefits with your job. Some advisers suggest you have a multiple (e.g. 8 to 10 times) of your annual salary insured and that the policy is in force until your youngest child turns 23 or finishes full-time education. It is a fact that every family’s needs will differ from home to home. Our independent advice is tailored to your needs and personal circumstances.
Make a Will
It’s not a particularly pleasant topic to discuss but following a life event such as the birth of a child you should contact your solicitor and draw up or update your Will.
It is important to document your estate, the beneficiaries and guardians. Some parents elect to structure their estate in a way that will distribute the assets to their children on a staggered process as opposed to the child receiving a lump sum at the age of 18.
Review your Retirement Plan
As is the case with your short-term savings, you need to be looking ahead and thinking about what happens when you or your partner stop working.
Now is the time to assess your financial needs as well as your newborn’s. If you have been contributing to a pension plan either through work or privately then you need to keep this going. You are benefiting from the generous tax relief as well as building a fund to live off when your children are starting their own families.
Financial Planning doesn’t have to be difficult or complicated. It is important though to get independent advice from a qualified advisor. The advice should be personal to your circumstances and reviewed at least every 12 months.
To help you make the right financial planning choices for your family, call Alpha Wealth Financial Advisors in Cork today on 021 02061783 or email info@alphawealth.ie