And why it’s never too late to start!
So, you want to have a baby? Or maybe you have just found out that you are expecting? Before the congratulations come in thick and fast, you may wonder if you are prepared to be a parent. Sometimes, even if you have already had your little ones, it’s possible that you feel like you don’t quite have a handle on your finances.
If you think that you aren’t “financially adulting” as much as you could or should be, here are five simple ways that you can prepare to be a parent and feel more like you are in control:
- Health Insurance
- Making a will
- Critical illness cover
- Life insurance
We usually recommend that you have at least three months of your family expenses in the bank at all times. However, when you become a parent, this can change slightly. There are lots of additional and sometimes unexpected expenses that need to be dealt with. In a volatile market or an industry where your job situation is more fluid, it is vital that you have an emergency fund in the bank of around six months of expenses. Some of my clients prefer up to a year of their expenses in the bank, so it’s a matter of personal choice – whatever helps you sleep at night knowing your family will be okay.
2. Health Insurance
This is something that most of us get with work. If you are preparing to be a parent though, then you might want to investigate maternity cover to make sure that you are able to have the birth that you want and where you want it. It’s always good seeing what your work provides as you might be able to top that protection up to cover exactly what you need.
Most health insurance companies have a waiting period of nine to 12 months before maternity benefits kick in, this means you need to be very organised and have the insurance in place before you start trying to get pregnant. Even if your insurance doesn’t cover you going private, don’t worry about the maternity care available for ID cardholders in public hospitals. It is, by and large, excellent. It can be an exercise in patience and sitting around in a waiting room can leave you frustrated but, generally, it works smoothly and painlessly. The best bit? It can all be paid for using your Octopus card!
3. Making A Will
This is the biggest piece of advice I can give you. If you do not have a will you have no control what happens to your assets if something happens to you. First and foremost, you need to name a guardian. If no guardian is appointed, your children may become “wards of the state” and there is a chance that they might end up in state-run care if both parents are deceased. Families who are geographically isolated from their extended family are particularly at risk when things go wrong. Any guardians must be stated in a legal document in order for them to be allowed to step in. I can’t think of anything worse for a grieving and confused child than to be placed in state care until a family member or family friend comes to collect them. It is vital that a temporary guardian is stated so that they can step in and take over in an emergency.
4. Critical Illness Cover
When you become a parent you become the grown up in a kid’s life. So what happens if you get sick and can’t work? How will you pay for rent, schooling and living costs? How will you make sure you don’t decimate your savings and take a massive step back in your life plan by taking a year or so off to get better?
This is where critical illness insurance kicks in. If you get sick, you get a cheque to use however you want to make life easier. This might be to hire a health worker for home, it could be used to pay off a mortgage, cover the kids’ school fees or pay for a long holiday post-recovery. In Hong Kong, this is something that companies are not great at including with the various insurances they offer their employees. The good news is that it is relatively cheap. Also, the younger you are, the less expensive it is.
5. Life Cover
This is always a horrible subject to think about, but it needs to be done. When working out my life cover needs, I calculated roughly how much it would cost to send two kids to university. I then added how much would be required to buy our retirement home without a mortgage. These are the very basic things that I would like for my kids and now I know they are covered if my salary was taken away from the family income.
While calculating how much life cover you should pay for, you may want to add in a lot more factors including private education costs, money to cover inheritance taxes or a future deposit for their first home. Check how much you are covered for with your employer and what conditions are placed on it. From there, you can work out how much you need to take out privately.
There are a lot of things to think about when having children. We often spend more time thinking about the fun and happy part of parenting, from what to name our kids to when to wean them. Financial needs sometimes get overlooked in the rush of emotion that a new parent is feeling. However, the more you know about your current financial situation, the better you can plan for the future you want for your family. Being a parent in Hong Kong is hard and expensive so do use these tips carefully to create a financial safety net. Please do reach out with any questions about how you can set your family up for the future.