16th June 2014 at 1:59pm
Did you once play fast and loose with your money, in the days BC (before children)?
I caught up with a friend of mine who’d recently became a dad, and over a drink in the pub, he talked me through how life had changed in the last few months.
No more investments which are ‘worth a punt’
He described himself as a reformed cavalier investor who had seriously de-risked his portfolio.
After his small person had arrived, he said the change was instinctive and necessary. No more high risk, speculative investments in single company shares which might come good one day. There was more to lose now, and it was no longer just about him. Someone else was now the priority, and exercising influence over his investment decisions without even being able to talk yet.
His timeframe for making plans used to be 0 – 3 years. Now it’s more like 18 – 25 years, as the prospect of education fees comes onto the horizon. It’s all about the long term now, no more short term vision. And for the first time, my friend had paid close attention to the tax year end period. He had made the most of tax efficient investing by topping-up his 2013/14 ISA before it was too late – in years gone by, he hadn’t always bothered.
How to save for children
We then got talking about the options for how to save or invest for children. He thought a Junior ISA (JISA) would be a simple answer, without problems. But he didn’t know one of the key risks with a JISA was that the money belongs to the youngster, who can spend it as they wish at age 18. I could see the expression on his face as this sank in!
This lack of control is one of the main reasons why some parents choose to invest for children simply by making use of their own ISA allowance. That keeps you in control of when and how funds are spent, since the money belongs to you. Helpfully, the ISA limit goes up to £15,000 from 1 July 2014, which gives plenty of scope for saving for various purposes all inside the same ‘pot’.
The JISA could however play a useful role for some pocket money/Christmas money, as an introduction to saving, to help develop good habits early.
Ten tips to help new dads
It got me thinking about making a checklist for new dads, which he’d made a start on.
1) Review your investments.
2) Consider the risk profile of your investments – do they still reflect the risk you are willing to take? To find out more about your appetite for risk, try this questionnaire
3) Have you made use of your ISA allowance? An ISA means you can make the most of tax efficient saving or investing. And you can save for you and your family, in the same place.
4) Have you made a Will (or reviewed your Will if it’s outofdate)?
5) Have you appointed a Guardian to your new arrival, just in case something happens to both parents? You can name this person in your updated Will.
6) Have you made a Power of Attorney (of the kind which keeps working if you become unwell)? My friend hadn’t thought of this one – but if dad’s the main breadwinner, then it’s vital his finances can keep ticking over even if he has an accident or becomes unwell. His family may be relying on his financial support more than ever, and a Lasting Power of Attorney (Continuing Power of Attorney in Scotland) is important.
7) Have you updated your Expression of Wishes form, for your pension death benefits?
8) From a workplace perspective, if a death-in-service lump sum is part of your employment package, does your Expression of Wishes form need to be updated?
9) Don’t forget your pension payments – it’s sensible to try to maintain your long term savings, even though there’s more pressure on your finances now. Most pensions are flexible and allow you to increase or decrease your monthly payments.
10) It’s not nice to think about, but being practical – do you have enough life insurance in place?
For more tips for parents, check out Daddacool.
If you’re a new dad and follow these 10 steps, you can at least make sure your lack of financial planning isn’t the reason for your sleepless nights.
The information in this blog and any replies to comments are not financial advice. A Stocks and Shares ISA is an investment. Its value can go up or down and may be worth less than you paid in.
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Standard Life has a referral service, which can help you put a will or power of attorney in place. We’ve linked with a law firm in England and Wales, and also Scotland, to make it easier for you to take the next step. These law firms offer a fixed fee service, to give you certainty over how much it will cost. If you’d like to use this service or request an Information Pack, call us on 0845 272 8848. Phone lines open Monday to Thursday 09:00 – 19:00, Friday 09:00 – 18:00, Saturday 10:00 – 13:00. Calls may be monitored and/or recorded to protect both you and us and help with our training. Call charges will vary.