by Darach Honan, Trusted independent financial advisor with IPS Financial Advice
YOU’RE expecting a baby! So what does that mean for your finances?
For anyone in the happy position of looking forward to the arrival of a baby into their lives, the months before the birth will be a whirlwind of doctor’s visits, scans, ante natal classes, parenting books, name choosing and the buying of cots, baby blankets, clothes
and a whole lot more.
Naturally, the financial aspects of having a baby will figure somewhere in the middle of this whirlwind, but many expectant parents will probably leave such financial matters aside ‘until the dust settles’ after the baby’s arrival.
The thing is, however, that the dust never does settle after the baby arrives. Which is why now is the time to think about how a baby might affect your finances, the steps you can take to protect your new lifestyle, and what you can do to provide for your child in future.
Having a child is a big step for everyone: emotionally, practically and financially. With the responsibility of parenthood comes a new level of financial commitment and responsibility. With childcare costs in Ireland higher than ever there is no doubt but that financial planning will be an important aspect of family planning.
There are a few things you can do right away which will help spread the cost of raising your child and give you better lifestyle security and peace of mind.
The first of these is to start putting some money aside on a regular basis to cover the costs of your new baby’s first few years. After what might be years of providing for yourself and perhaps a partner, the extra day-to-day expenses of a baby can come as a bit of a shock to new parents. Even if you’ve only got two or three months to go, any extra money you can save now will come in handy later when the baby is outgrowing its clothes every few weeks and developing an appetite that nearly matches your own.
It can be a good idea to put some of your savings on deposit where you can easily access them, and the rest into a secure longer-term savings plan where your money can earn a better rate of interest. You can then draw down the money you have saved into the plan at your child’s later life stages such as when they start primary school, secondary school and college. Even if that all seems impossibly far away right now, you’ll be very grateful for your foresight when the time comes.
Many parents are keen to invest some money to provide a ‘nest egg’ for their children, perhaps to help them onto the housing ladder or cover third-level education. Investing money with this in mind can pay big dividends if you are prepared to take a long-term view. While investing money on behalf of your child in assets such as shares, property, bonds and currency is not without its risks, there are a wide range of investment options that provide a solid degree of capital security as well as the potential to earn an attractive return over the medium to longer term.
There is another financial essential that comes with the responsibility of parenthood: the security of your lifestyle. Your income is what provides the foundation upon which your family’s lifestyle depends. So you need to think about what would happen if you or your partner was suddenly unable to earn an income due to illness or injury. If you are employed you would probably qualify for sick pay for up to six months, but beyond that how would you pay for childcare, education and the essentials of everyday living such as your mortgage, your car and everything else?
Fortunately, there is a financial product that covers all that at a stroke. It’s called Income Protection and what it does in the event of illness or injury is pay you an income until such time as you are able to return to work or until you retire. You pay a monthly premium based on the level of benefits you require and then, in the event of a claim, the policy will pay you up to 75% of your net relevant earnings. Peace of mind is one of the main benefits of Income Protection – knowing that it’s there should you ever need it allows you to focus on your child and your family.
There are, of course, other financial aspects to having a child such as Life Cover and Health Insurance, so the person who is best placed to give you more advice and talk you through the options open to you is your financial adviser. They are full qualified and experienced to help you choose Income Protection, Life Cover, savings and investments that are right for you and your new family. By working with your financial adviser to work out what you do and don’t need, you’ll enjoy the security and peace of mind that will help you prepare for the arrival of a very special new person in your life.
For further finanacial enquiries contact Darach at Darach@ipsfa.ie or 087-1277155