Whether you’re a new dad or have years of parenting experience under your belt, you’ve probably realised that fatherhood comes with lots of financial responsibilities. Juggling them all can be overwhelming, but the following steps should help you feel more in control of your finances, so you can get back to the joys of being a dad.
Download: A guide to investing for children
Everything you need to know about investing for your child or grandchild’s future.
1. Build a rainy-day fund
If you haven’t already got a rainy-day fund, this is the time to start building one up. You should typically have six months’ worth of essential expenditure in an easy-access savings account. This could help pay the bills if you suffer a period of unemployment, or cover unexpected emergencies like your boiler or car breaking down. Having a rainy-day fund reduces the risk of going into debt or tapping into savings you’ve earmarked for longer-term goals, such as your child’s university education.
2. Protect your income
Having children is wonderful, but it can also be expensive. While no-one wants to think about illness or death, it’s really important to ensure your children would be financially supported if the worst were to happen to you.
Income protection is a great financial safety-net, as it pays out a proportion of your salary if you suffer from a long-term illness and are unable to work. This could help you to keep paying the bills, so your children’s lifestyle isn’t unduly affected. Income protection policies do vary, so make sure you seek financial advice on which one is right for you.
It’s also worth considering life insurance, which pays out a lump sum if you die during the policy term. This could help to pay off the mortgage, alleviating some of the financial pressure on your family at an already stressful and upsetting time. You should also check you have an up-to-date will – this allows you to appoint guardians for your children and ensures your money and assets go to the right people when you die.
3. Invest in your kids’ future
Finding money to set aside for your children’s future might be challenging, but if you can afford it, it’s well worth doing. With the cost of university rising and house prices considerably higher than a year ago, your child could face significant financial pressures as they enter adulthood.
Investing relatively small amounts of money each month could grow into a sizeable sum over time, particularly if you start investing early. Our analysis shows that if you invested £100 per month over ten years, your child could have a pot worth nearly £15,000, assuming investment growth of 4% a year after charges but before inflation. If you invested the same amount over 18 years, they could have a pot worth over £31,000 – that’s more than double. If you invested £300 a month, these figures would be around £45,000 and £95,000, respectively.
A great way to invest for children is through a Junior ISA. Investment gains are tax free and your child won’t be able to access the money until they reach age 18, at which point it will automatically convert to an adult ISA.
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4. Don’t neglect your own savings
Investing on behalf of your children is a great thing to do, but it’s important that you don’t neglect your own savings. This is especially the case when it comes to your pension. Your retirement might seem like a lifetime away, but stopping or reducing pension contributions for only a few years could have a big impact on your quality of life in retirement.
It’s really important to get a clear understanding of how much your pension is likely to be worth in the future and how much retirement income that could generate. That way, you’ll know whether you’re likely to achieve the retirement you want or need to prioritise your pension savings over other financial goals. If you’re facing a pension shortfall, one option could be to increase your pension contributions while reducing or even delaying saving into your child’s Junior ISA until they finish nursery. That would still give you around 15 years to build up their savings.
5. Get some smart advice
When you have several competing savings goals – your rainy-day fund, children’s futures and retirement – it can be really difficult to know how to balance them all. This is where getting some smart advice can help. By understanding you and what you want to achieve in life, a financial adviser can help you decide how much you should be investing – and where. They’ll also check you’ve got the right protection in place, so you can feel confident you’re doing everything you can to build a more secure financial future for your children.
The value of investments, and any income from them, can fall and you may get back less than you invested. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Neither simulated nor actual past performance are reliable indicators of future performance. Information is provided only as an example and is not a recommendation to pursue a particular strategy. Forecasts are not a reliable indicator of future performance.
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