Becoming a parent is one of the most life-changing and exciting experiences. You’re suddenly responsible for another person’s survival and existence.
For many new parents, seeing the big picture can be challenging. You’re sleep-deprived and excited about the little human in your life at the same time.
As you embark on this frightening and exciting journey, preparation is key. For starters, you must always have it in mind that your financial needs will change as your child develops and grows. But don’t fret.
In this article, we’ll share a simple guide to financial planning for new parents. Let’s dive in!
Take out life insurance
One of the most effective ways to protect your family as a new parent is to take out life insurance. Have you ever wondered what could happen to your dependents if your income stopped streaming in or worse, if you passed away? This is where life insurance comes in.
This policy serves as a tool that ensures your loved ones are safeguarded, regardless of what befalls you; whether a critical illness or an untimely death.
There are various forms of life plans today including Whole of Life, Term Life, Income Protection and Critical Illness cover. We’d particularly recommend starting with the latter if you’re not ready to spend a lot of money on life policies.
What is critical illness cover?
As the name implies, this policy is designed to support you and your loved ones if you’re diagnosed with a covered critical illness. When the risk occurs, the plan pays out a tax-free lump sum benefit your family can use to pay the bills as you recover.
As we said, your insurer provides you with a defined list of illnesses it considers critical, which means conditions covered under this plan vary from one provider to the other. Typically though, all major conditions such as heart attack, cancer and multiple sclerosis are covered by most insurers.
Understanding the different kinds of policies available can help you make an informed decision on the most appropriate life insurance cover for your dependents.
The right policy can help take care of your medical expenses, replace your monthly income, and pay off debts. It can allow your family to rest easy knowing that they are protected from life’s uncertainties.
Create a realistic budget
Child care expenses such as diapers, baby clothes, and food can accumulate quickly, not to mention the postnatal and prenatal medical expenses.
Setting a budget is the best way to ensure that you can comfortably take care of your family even in the future. Review your current expenses and income regularly and determine if there is room for additional expenses.
If you’re barely making ends meet, look for a way to get additional income or cut back on your spending. A realistic budget can help you know if your family can survive on just one salary or two.
Build an emergency fund
Another important element of financial planning, especially if you’re a new parent, is saving for a ‘rainy day’. Unemployment can be stressful on a growing family.
As a general rule of thumb, it is advisable to have funds that will cover at least 6 months of your family’s living expenses in case of an emergency.
Emergency savings can ensure the smooth running of your household in the event of a large unexpected expense or job loss. It provides a comfortable cushion for your family to adjust to the new lifestyle or make up for the loss as you look for a new source of income.
Start saving for your child’s education and future
The earlier you start saving for your child’s future, the better. Research shows that the average tuition and fees at a public university for the four years is roughly $243,000.
If you were to start saving up for college when your child is born by contributing a principal of $500 every month at a 5.14% return rate, the total amount would be $216,000 after 18 years. However, if you decide to start saving when your child is ten years old, the total amount by the time the child is 18 years old will be $86,000.
While it may not seem like an immediate priority, it’s advisable to begin planning for your child’s future from the start.
Being a parent comes with endless responsibilities touching on the care and future of your children. Luckily, with proper financial planning, you will be better equipped to overcome any challenges that come along the way including emergencies, unexpected illness and expensive colleges.