Being a first-time parent is an exciting experience that is followed by a new set of responsibilities. At times, these responsibilities can be both exhilarating and exhausting.
Most new parents prioritise planning for their child's daily needs, but it is also critical to begin planning the roadmap for securing their financial future.
Sound financial planning by parents is critical at an early stage as it can greatly benefit children in the long run by assisting them in achieving their milestones such as higher education, a better lifestyle, or investment in key assets, among others.
As financial advisers, here are four key financial planning essentials to help ease your clients’ future worries and foolproof their child's tomorrow:
- Secure coverage with term insurance
Parents must ensure that they have adequate life insurance coverage in order to provide for their children as they grow older. A term life insurance policy is an excellent choice for this purpose. A term insurance policy will act as a backup plan, assisting your clients’ families in meeting their basic financial needs or liabilities if they are unable to do so.
- Invest with new goals
Inflation can derail even the best-laid financial plans; therefore, your clients must invest in financial products that provide long-term returns that outperform inflation.
To accomplish this, a strong yet flexible combination of investments and protection can assist your clients in getting started on the path to wealth creation for their child.
If your clients want to build a corpus for their child, a combination of a Term Plan (for protection) and a Child Plan (for wealth creation) is an excellent choice to consider.
- Plan for emergencies
Your clients should begin accumulating an emergency fund to cover their child's unforeseen needs and expenses.
A well-structured financial plan is shock-proof because it includes a safety net for financial contingencies.
Prepare a financial plan for your clients and figure out how much they can save each month. After considering an emergency fund, allocate the remainder to a good mix of insurance (life and health) and investments.
- Prioritise retirement plans
Your clients should start working on their retirement plans and start saving now to avoid being unable to support their child's dreams in the future.
At the same time, they should keep track of their current and post-retirement lifestyle/aspirations.
Your clients should chart out the future they want for their child. Key milestones in a child’s life should be highlighted and sums of money needed should be earmarked for those moments. A future expense calculator should be used to figure out these numbers.
Many new parents make the mistake of not purchasing life insurance because the process can be overwhelming and stressful. The good news is that most life insurance companies have now digitised the entire process, making obtaining life insurance easier than ever.
The birth of a child brings immense joy to the family. And making adequate plans to secure their present and future in the face of life's uncertainties will make parenthood a truly rewarding experience.
This is an abridged version of an article that first appeared in DT Next.