Two becoming three can be a bit of a shock for new parents, but this is one of those moments that should encourage a bit of taking stock and some financial nest building. This is usually difficult, as maternity pay is hardly generous and most new babies need a mound of stuff purchased, big enough to fill the largest estate car!
This will seem bizarre, but new parents need a will. If Junior was the only survivor of a car accident or similar mishap and there was no will appointing a guardian, then Junior would be in the tender mercies of social services. As a general rule, orphans do better with relatives than the care system!
Life insurance for both parents also makes sense at this point. Relatives will find it much easier to bring Junior up if they have some income to fund Junior’s living costs. Life insurance on a Family Income Benefit basis could provide a regular income to financial independence at, say 21. If the policy was in joint names, then if either parent died, the other would have enough to keep the household running until Junior was ready to leave home.
Parents and grandparents can think about private education or university fees and start saving for the expenses to come. Junior ISAs would be a good start to anyone’s finances, whether it is a first car at 17/18 years old, university fees and living expenses at 19-21, a rental deposit for a flat or a deposit for a house or flat purchase at some later date. But a word to the wise; once Junior is 18, the Junior ISA money is theirs, to spend as they please.
For parents and grandparents worried by an 18 year old spending all of their savings on something inappropriate, then consider funding a pension plan started very young. Under current legislation, Junior could not access the money until aged 55, but as the pension would have been in existence for so long, the investment gains through compound interest and tax relief should be substantial. As everyone will need a pension in later life, starting early will allow other priorities to take precedence in early working life.
Developing a financial plan for the family would be a good idea in any event. Firstly, sort a household budget out and make sure it is realistic. If you are spending more than you are earning, you only have a limited time to get things on an even keel. Next, get an emergency fund together of three to six months net income to deal with short term emergencies, like the car failing it’s MOT or the freezer breaking down. Short-term credit is too expensive to use on a regular basis and too much of a drain on the family finances. Avoid payday loans, as these just make other people rich and you poor.
Once your emergency fund is in place, then you can look at other options like stocks and share ISAs, pensions and other plans.
An independent financial adviser, like us, can help on every step of the way, matching products, like life insurance to needs, and avoiding the pitfalls along the way.
If you would like to know more about how we can help you plan and realise your financial goals then contact us at firstname.lastname@example.org or call us on 01223 792 196.
The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.