Making Cents: First-time father? Time to reassess your finances as a new parent

Making Cents: First-time father? Time to reassess your finances as a new parent
An important part of becoming a parent is taking on the extra responsibility of total care for another human being. It is not just about nappy changes - whenever time allows, there are a number of financial planning priorities that parents should address.

Congratulations to all the dads who will be celebrated by their loved ones on Sunday and most particularly to those experiencing Father’s Day as a father for the first time. 

There are few more challenging and exciting times in life than those first months and years of being a parent.

It can be overwhelming too, from the shocking lack of sleep to the drastically different lifestyle. 

New parents are so busy trying to manage the day-to-day craziness, they often don’t get a chance to step back and look at the bigger picture.

But another important part of becoming a parent is taking on the extra responsibility of total care for another human being. 

And these little people have long-term needs too, it is not just about nappy changes. Whenever time allows, there are a number of financial planning priorities that parents should address.

A high priority should be to live by the old adage, ‘hope for the best but prepare for the worst’. 

If you have young children, the worst-case scenario is that something happens which means you are no longer in a position to care for and/or provide for your family.

Many individuals and young couples do not have insurance on themselves - or nothing beyond the minimum required for a mortgage. 

But being in this situation as a parent could mean leaving your family exposed to financial hardship.

Although it is not pleasant to contemplate, you should consider how your family would manage if the earner(s) in the family were unable to work. 

No one thinks it will happen to them, but it happens to thousands of families, every year. 

A 2019 analysis by Aviva of its protection claim statistics found over half (53%) of claimants were under the age of 50 at the time of claiming income protection. 

Someone in Ireland receives a diagnosis of cancer every three minutes, according to the National Cancer Registry of Ireland. 

Anyone wondering about the importance of income protection/disability insurance should consider for how long they would be able to meet their outgoings on the maximum State illness benefit, currently €203 per week.

“For families, the impact of illness or disability on income can be devastating,” broker Nick McGowan says. “Income protection will pay you up to 75% of your income if you're unable to do your job due to any illness and will continue to pay out until you get back to work.” 

He suggests people first check with their employer to see if they have income protection as a work benefit. But if they don’t, it should move to the top of your financial priorities.

“The question I always ask is, imagine you had a money machine in your kitchen printing thousands of euro every month,” he says. 

“Would you insure it? Of course, you would. You are that money machine, and income protection insures your ability to keep on printing money.

Depending on your personal circumstances, serious illness cover may be the correct option to protect yourself and your family.

“Serious illness cover is an option for people who can't get income protection due to their occupation (high-risk occupations may struggle to get income protection cover),” Mr McGowan explains. 

“It pays out should you get a specific illness as defined by your policy so make sure to check the terms and conditions before signing up.” 

Once your income is protected, the next step is to ensure you have sufficient life cover. 

As with income protection, this is an area where it is worth sitting with a financial adviser, in order to work out the correct amount for your individual needs. 

Variables will include if you already have cover related to a mortgage, what your current income if and the ages of all your children. 

Ideally, you want to have peace of mind that your family will be covered until such time as your youngest child is fully financially independent.

Your retail bank will offer a financial advice service or you can go to an independent broker who will be able to assess which is the best insurance for you from a range of providers.

If this all sounds very gloomy, there are also very positive elements of long term financial planning. You may be dreaming of the day you teach your bundle of joy how to use the toilet and feed themselves but there is a whole world of learning ahead for them. And it can be expensive. 

Plan early for how you intend to pay for your child’s education, and you make it easier to do so without making huge inroads on your daily budget.

The costs of college education in Ireland are eye-watering, up to €12,000 per annum if your child is in college in Dublin and cannot live at home.

If a parent waits until four years before their child starts college, they would need to save €1000 a month to accumulate €48,000 for a four-year course. Begin saving 16 years before they start college and the monthly figure drops to €250 per month.

The National Treasury Management Agency (NTMA) has a number of products for parents who wish to save their child benefit; you can find out more at your local post office.

But while you are with a financial adviser to discuss protection policies, you should also ask about investment and savings policies available through the various life companies.

These policies enable you to invest in a range of funds from low to medium to high risk and there are options for both monthly savings and lump sums.

It can sound daunting to sit down and make long term decisions when life is so hectic but putting cover and plans in place will give you the peace of mind of knowing your loved ones are protected and allow you to concentrate on family life.

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