Planning your family’s future

Having your first baby is a big learning curve. And not just from a parenting perspective. Yes, there are nappies to learn to change, settling techniques to try out and the logistics of getting everything a small baby needs for a day out into one bag. Not easy. But there’s more to it than that.

Planning your family’s financial future is also a big learning curve. Beyond the every week number-crunch of the family budget and coming up with the mortgage payment monthly, there are questions to be answered about education, lifestyle, and, with any luck, planning for your child’s life post-school – and your life post-child!

But how do you do it? When you’re not sure where life will take you, how do you plan a future for your family?

According to Matthew Walker, founder and director of WLM Financial Services, a Sydney-based financial planning and accounting practice, the very first thing you need to do is a family budget.

“It’s important for future planning that you know exactly what your lifestyle expenses are,” says Walker. “Do a budget. Know what’s necessary and what’s discretionary. At the end of the day, any future plans you may have depend on that discretionary income. If you have a bit left over, you can make serious plans. If not, it’s more difficult and you may be better focussing on the here and now for the time being.”

Once you’ve established where you’re at, it’s time to start thinking about the future. For Walker, there are three key areas to consider:

Estate planning

This is an area that many of us close our eyes to, particularly when planning for the future. Wills, powers of attorney, guardians – no-one wants to consider these. But, says Walker, it’s essential that families, especially those with young children, think about this first.

“It’s so important to have this in place,” he says. “Who’s going to be guardian for your children if something happens to you? Who will make medical decisions for you if you’re in a coma? Manage things if you’re not around?”

Insurance

Next comes the dreaded question of insurance. “Under-insurance is a significant problem in Australia, with around 70 per cent of people vastly under-insured in all areas,” says Walker. In New Zealand rates are not much better.

Often, a family with one parent working and one parent at home will insure only the working parent, but Walker says that this needs to change. “There’s a significant financial impact on the family that loses one parent, irrespective of whether it’s the working parent or the stay-at-home one,” he says.

Think about it. If you’re a stay-at-home parent and your family lost you, who would do all the things that you do? They would need to be paid for. Who’s going to pay for that?

“the most important insurance at this stage is Income Protection Insurance,” says Walker. “You must ensure that the cash flow continues.” After that, he says families should look at Total and Permanent Disability Insurance, as well as Life Insurance. An insurance broker can help you work out which is the best insurance for you. “Look for independence where possible,” says Walker. “Find someone who’s experienced to help you through the maze of contracts and providers.”

Wealth creation

Once you have all the foundations in place, it’s time to consider investments. “You could look at the equity in your home and look at ways to create wealth,” says Walker. He does caution, however, that one of the best routes to freeing up disposable income for a family is to pay off the family home first.

“Once you start to consider wealth creation, get some advice,” he says. “An independent financial planner can help you to consider all your options.”

How to find a financial planner

Choosing a financial planner to help you create your family’s future is not easy. The first step is to think about what you want from your expert – what are your goals and do you have any ideas about how you want to meet them? Prepare yourself by gathering all your financial information in one place – superannuation statements, bank statements, and, of course, your budget.

  • Finding financial planners in your area is as simple as visiting www.ifa.org.nz . You can also simply ask around – as with most things, word of mouth is a great recommendation.
  • The next step is to meet with two or three planners. Yep, you get to interview them. This person is going to have a lot to say about what you do with your money, so it’s important that you are comfortable with him or her. The Australian Financial Planners website has a great list of questions to ask, as well as four great reasons to eliminate someone from your list (for example, if they try to sell you a finance product at your first meeting!). Don’t forget to ask about how they are paid – some have a straight fee-for-service, while others are paid on commission from financial services providers. Be clear and comfortable about the payment system.
  • Once you have chosen your planner, set up an appointment and then review the plan or Statement of Advice they provide you after your meeting. Think carefully about whether you are happy to go ahead with the advice they’re offering. If you are, congratulations – you’ve made a huge step towards planning your family’s future.