Financial Planning for Parents with Young Children
Parents used to focus their financial plans primarily on their children’s higher education. With the increasing cost of living these days, financial implication starts as early as when the child is in childcare, or even earlier when the child is in the mother’s tummy.
Moreover, parents tend to neglect their financial plans when their family nucleus expands. With so much time and effort spent on work to provide the best for their children, they have no more energy or resources to plan for their future.
What about your financial plans? If nothing is in the pipeline, read on to find out how you can start planning today.
Where to Start?
1. Understand your Financial Health
Financial health is used to describe the state of one’s personal monetary affairs. There are many dimensions to financial health, including the amount of savings you have, how much you’re putting away for retirement, and how much of your income you are spending on fixed or non-discretionary expenses.Investopedia
To understand your financial health, start by calculating your net worth—the difference between your asset and liabilities. Next, pull out the numbers to see your cash flow, not those that are stuck in fixed deposits. Subsequently, analyse personal financial ratios such as emergency funds ratio and savings ratio.
From your numbers, identify strengths and weaknesses of your financial health. If you don’t know how to calculate these ratios and/or assess your financial health, it’s best to get a professional to have a look.
2. Chart out your Financial Goals
Quinn* has advised many parents since she started as a financial consultant in 2014. Based on her experience, many first time parents consider buying a car for convenience. However, she would discuss other factors they should consider before committing to a major purchase.
With a two year old daughter, Quinn can relate to the financial needs and concerns of parents with young children. “Take a step back and look at your financial situation and your goals before committing that big purchase,” Quinn would advise parents, “You might be compromising the bigger goals you have. Cash flow management is of essence”.
For Quinn, she helps her clients plots out goals and scenarios that impact them financially. Goals such as purchasing house at age 29, having first child at age 30, and so on. In her planning, she also shows how different scenarios in the future can impact her client’s financial health.
Unexpected scenarios such as disability, or common scenarios such as change of career, liquidating investments at certain age, or going on sabbatical leave. In fact, many mothers who just gave birth extended their maternity leave with no pay leave. And this requires some careful financial planning too.
Using a software that generates a report with ratios and charts, Quinn is able to provide a great visual aid of her client’s current and future financial health. The report can be based on a couple’s combined finances, with breakdown into cash and CPF, and detailed goals and scenarios.
With this understanding, she identifies her clients’ financial risks and subsequently provides recommendations on how best to manage the impact of these risks.
Manage Your Risks
After identifying financial goals and risks, one can then manage them and protect their assets. Protection is important to her because why allow unforeseen circumstances to wipe out your entire savings if there is a way to protect it? Protect it, grow it.
Quinn would also by now have gathered enough information to propose the ideal insurance coverage required for her clients. As a Certified Financial Planner, she has the technical knowledge that helps in coming up with her client’s required coverage.
So instead of giving a blanketed recommendation, such as life insurance coverage should be ten times your annual income, she calculates a coverage that is specific to each client. To her, different people have different needs, and these needs may also change along with time. Hence, she proposes a tailored coverage for each individual client.
Moreover, she believes that you have to first protect yourselves as parents before providing for or protecting your children. And lastly, setting up retirement funds.
Protect parents, provide for children, then retire.
Her rationale is that if anything were to happen to the sole breadwinner or the ones with earning capabilities, who is going to take care of the children financially? She knows this first hand because her mother unexpectedly passed away from an illness when she was six years old.
Moreover, coming from a low income family, she understands the financial burdens passed on from parents to children. She wants to relieve future generations of such burden and give them financial freedom. Hence, she emphasises on the importance of wealth management or financial planning by parents. She believes strongly in what she’s doing, that is to help families plan their finances more wisely.
Children’s Education vs Retirement Planning
If you have sufficient funds to cover for short and medium-term expenses, then it’s best to think and plan financially for a longer term next. Two major areas to set aside or grow your money pot for the long haul are children’s education and retirement planning.
You could work towards both objectives at the same time. If your current financial status don’t allow you to set aside so much, Quinn suggests you work on the one that comes first — that is children’s education, and then along the way, as you accumulate and grow your money, the excess goes into retirement planning.
Because of circumstances and financial climate, you might not achieve all the goals at a given point of time. Hence, it’s important to meet up with your financial consultant for regular reviews.
Also, instead of parking your cash in the bank, there are many opportunities to grow your money at a faster rate. If you are time starved or overwhelmed by the research and numbers, seek Quinn or your financial consultant for recommendations.
Life’s unpredictable. It can be cut short unexpectedly.
Insurance mitigates financial losses of a family while legacy planning helps you to distribute what you own. Having wills are not only for the wealthy. As long as you have assets, you are rich enough to give.
Legacy planning ensures your intended beneficiary(ies) such as your children receive your assets, such as your properties, CPF monies and investments, according to your wishes. For insurance policies, you could do a nomination of beneficiary.
Without a will, your assets will be distributed in accordance to the Intestate Succession Act (“Act”) for a fee. Generally, it is easier, cheaper and faster for your beneficiary(ies) to receive the assets with a will than to distribute your assets according to the Act.
Another reason for a will is for you to appoint guardians for your children. This will minimise dispute among relatives/grandparents, who might either not volunteer or fight for the right to take care.
This Straits Times article about the importance of will is a good read. If you find the information daunting or unsure of the next step, seek help from Quinn or your preferred professional. They will guide you on will writing, and on what’s covered by a will and what’s not. On a related note, do look into Lasting Power of Attorney and Advance Medical Directive as well.
For free webinars on will writing and other financial matters, contact Quinn. Feel free to email, WhatsApp or call her at email@example.com, or 9139 8267. Clear misconceptions about will writing and learn tips and tricks when crafting your will. You can also contact her for financial planning for yourself, children and/or other loved ones.
*Quinn is registered with Monetary Authority of Singapore as Huang Qiao’E. She’s a Certified Financial Planner (“CFP”), and as of end-2019, there are only 1,033 CFP among more than 20,000 insurance representatives in Singapore. She was in audit for 5.5 years before she became a financial advisor in 2014. Currently, she’s with finexis advisory. Out of work, she enjoys team sports, playing hockey and floorball since her school days.
Disclaimer: This post is written in collaboration with Quinn. Please contact Quinn for further professional advice. JoogoStyle and Quinn accepts no liability (whether in tort or contract or otherwise) for any loss or damage arising from any use, misuse, inaccuracy or omission of the information or other contents published on this website.