Becoming a parent is, of course, a life-changing experience. But amidst the joy, excitement, diaper changes and sleepless nights, it is crucial for new parents to prioritise their financial wellbeing.
By implementing smart money moves, new mums and dads can safeguard their family and provide a solid foundation for their children. To that end, here are seven ways for parents to ensure a secure future for themselves and their kids.
1. Budgeting and saving
One of the fundamental steps for new parents is to create a budget. According to Bank Negara Malaysia, one out of three Malaysians faces financial difficulties owing to poor planning and budgeting.
To avoid this, begin by identifying your household income and expenses. Track your expenditure diligently to gain a clear understanding of where your money is going. Categorise your spending into essential and discretionary expenses, allowing you to allocate funds more efficiently.
Of course, unexpected expenses can arise at any time, which is why an emergency fund is crucial to protect your family. Aim to save at least three to six months’ worth of living expenses. If it helps, consider setting up automated transfers to a separate savings account.
Start small if necessary and gradually build up your emergency fund over time. By having this in place, you can handle unexpected financial setbacks without resorting to high-interest debt or depleting your long-term savings.
2. Health and life insurance
Adequate insurance coverage for your family is vital. Evaluate the available options and compare the coverage and benefits offered by each insurance agency. Pay attention to aspects such as hospitalisation, maternity care, and vaccinations for your child.
The Life Insurance Association of Malaysia calculated that the cost of medical treatment is rising at an average rate of 8-9% annually. Therefore, having comprehensive health insurance can help protect your family from the financial burden of medical expenses.
Consider policies that provide comprehensive coverage and consider the affordability of premiums, ensuring they align with your budget.
Life insurance is also an essential tool for providing security to your dependents in the event of an unforeseen event. Assess your needs and choose the appropriate coverage amount and term length.
Term-life insurance policies often offer affordable premiums for a specified period, aligning well with the needs of new parents. Consider factors such as your current income, outstanding debts, and future expenses when selecting a policy.
3. Estate planning and guardianship
New parents should prioritise writing a will to ensure their assets are distributed according to their wishes. Identify your beneficiaries and list your assets comprehensively.
A survey conducted by the Malaysian Financial Planning Council found that only 23% of Malaysians have a will in place. This highlights the importance of taking action to protect your family’s financial interests.
Seek professional assistance to ensure the will is legally valid and accurately reflects your intentions. Regularly review and update your will to accommodate changes in your circumstances.
4. Future education
According to the higher education ministry, the cost of tertiary education in Malaysia rises by 5% annually.
Explore education savings options such as the National Education Savings Scheme or unit trust funds specifically designed for education planning.
Take into account the impact of inflation on education cost, and contribute regularly to these savings vehicles to meet your children’s future academic needs.
5. Long-term investing for retirement
Even though it might seem far away, it is essential to plan for retirement early on. According to the EPF’s 2020 annual report, only 3% of Malaysia’s population are ready for retirement.
Understand the power of compounding and the potential it holds for growing your wealth over time. Identify suitable investment vehicles such as mutual funds, EPF, or other retirement savings schemes.
Consider seeking professional advice to align your investment strategy with your long-term goals. By starting to save and invest early, you and your spouse are more assured of a comfortable retirement.
6. Continuing personal finance education
As new parents, it is crucial to continue expanding your financial knowledge by being proactive. Read books, attend seminars, and participate in financial literacy programmes.
Make good decisions and manage your family’s finances more effectively by keeping abreast on personal money matters.
7. Open communication
When it comes to money matters, effective communication with your partner is vital. Discuss financial goals, concerns, and aspirations openly.
Collaborate on decisions concerning money and create a shared vision for your family in the long-term. By fostering open communication, you can align your goals, avoid conflict, and work together towards a secure future.