How Being A Dad Changes Your Financial Planning
Don’t you wish someone could have drawn up a checklist on the financial responsibilities you take on when you become a father? Welcoming a new member to your family comes with a long financial to-do list for both the short term and long term.
To save fathers from sleepless nights, we have four key financial moves that will bring any fathers (new or old) the peace of mind they need!
1. Getting (adequate) insurance
Being a new dad means that you’re bringing into this world a little human that will depend on you 100% — for everything. What would they do if you suddenly stopped being around?
It’s a morbid thought but one that needs to be addressed the moment your child is born.
It’s important that you review your life insurance policy by increasing your sum insured. That way if something happens to you, your family’s future financial needs will be adequately covered.
You should also get an insurance policy for your unborn child and your pregnant wife (from 18 weeks onwards) and then transfer it to an insurance or savings plan policy for your newborn baby.
2. Update your beneficiaries
Parents often get drowned in the motions of welcoming a newborn baby (surviving on a few hours of sleep every night can do that to you), that they overlook this important step of parenthood.
This should be done periodically and not just for new dads. If you have a second or third baby, you should also update accordingly.
This doesn’t just apply to your private insurance policies (from life insurance to mortgage life insurance) but also to your Employee Provident Fund account and company insurance policy (if any).
3. Saving for your child’s education fund
Starting your child’s education fund the moment he or she is born (or even before) may seem like overkill, but once you find out how much it’ll cost you to send your child to college when he or she reaches 18 years old, you will understand why.
Did you know that you may spend between RM393,000 and RM1.3 million per child from birth until university, with 30% to 50% of this cost spent on tertiary education?
That’s a lot to spend on one child, let alone multiple children. For the average wage-earner, this is the sort of expense that takes years to plan for.
However, relying on savings alone might not be enough either. This brings us to the next financial move every father should consider…
4. Review your investment portfolio
Investing is no longer just an option for fathers – it’s a necessity. It can help you achieve long-term financial goals, even if they seem out of reach right now.
For example, to save for an RM200,000 education in 18 years without investing, you may need to save RM925.93 every month. But if you can invest your money and receive an average return of 7% every year, you may only need to invest RM475.15 a month.
Other than your sleeping pattern and social life that changes with a baby, you should also anticipate a big change in your investment portfolio. As a new father, it is understandable that your risk tolerance would be much lower than before – you don’t have the luxury of losing money in your investment now.
It is important for fathers to review their investment portfolio to reflect that. With an additional financial goal (saving for your child’s education), your portfolio is in for an overhaul. Don’t worry, as your child becomes older, you will be able to adjust your portfolio to riskier investments as you see fit.
Don’t panic as you don’t need to get all of them sorted immediately. However, you should prioritise areas that have more immediate financial impact and work your way through the list.
With 18 or more years before your precious baby is ready to leave home, you have time on your side now to ensure that you and your loved ones will be better off by making these financial moves.
This article was first published in June 2014 and has been updated for freshness, accuracy, and comprehensiveness.