Dealing with your finances might not be the first thing that comes to mind when you welcome a new baby into the world. As a financial planner and a new parent myself, I’d like to share 6 key steps which I have taken as a parent, to help you as a new parent and specifically as an expatriate in Malaysia.
The first thing I discuss with potential clients is to ensure they have sufficient cash in the case of an emergency. Generally, I advise clients to have at least 3 to 6 months of expenditure in liquid assets that can be called upon at short notice if required.
We are experiencing one of the most volatile economic periods in history, especially in the shadow of the Covid-19 pandemic and considering the impact of rising inflation which is driving higher prices for basic goods which is causing a ‘cost of living crisis’ world-wide, and on top of all that, babies are expensive! Therefore, I would advise that your emergency fund to be as near to six months cover as possible before you start to consider your other investment planning.
This should be a priority for all new expatriate parents in Malaysia. What a lot of people do not know is that if both parents were to die, without an interim guardian established in their will, their child would be taken into Malaysian state care. Whilst family members would be able to petition the court once they arrive in Malaysia, this could take a matter of weeks or months to be fully processed. With this in mind, I would strongly advise you to name interim guardians. A will should also specify all in-situ assets in Malaysia, such as bank accounts, property or EPF, as generally these do not allow an expat to appoint a beneficiary. At Melbourne Capital Group, we can assist families or individuals in putting together international wills.
Ideally, it is better to check your health care cover before you fall pregnant because the maternity care provided in most health insurance policies only provide maternity cover 12 months after they policy start date, and many policies do not cover maternity at all. So, it’s important when you start thinking of having children to review your policy and ensure there is sufficient maternity care included. It’s also important to review when the baby becomes covered by the plan. I would also advise you to take out a policy that ensures the baby is covered from birth, as the first few days are likely to be when major medical costs could occur.
Having a baby brings about numerous new expenses – with childcare and future university fees being two of the highest priorities. If one of the parents were to pass away during the first 18 years, the other parent would have to find a way to pay for these expenses on his or her income alone, as well as the daily expenses of bringing up a child, which could be very tough.
Having a life insurance policy in place means the surviving parent can afford to pay for the additional support and can continue living their lives without added undue financial stress. I would always advise both parents to get cover even if one parent is not working. If a parent passed away this would bring about a significant increase in costs for the surviving spouse and they would have to juggle working and parenting at the same time.
With university fees for international students being close to £30,000 a year currently in the UK and often much higher than that this in the US, it is likely that this will be one of the biggest expenses facing new parents in the future. As an example, if you were to save $200 monthly for 18 years and achieve 8% per annum in average returns, then you would end up with a pot of close to $100,000. However, if you were to wait until the child is 10 years old, to get to the same figure, you would need to be saving $720 a month.
Whilst it is paramount to focus on building a savings pot for your children’s university fees as highlighted above - it is also still important to stay on track with your longer-term financial goals. Have a plan in place of what you need to be saving on a regular basis to reach your objectives and stick to that as closely as possible. If you stop or reduce saving into your retirement plan for long periods, it could severely impact on your standard of living later in life.
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