Each day we take care of them in so many ways - feeding, clothing, bathing, loving – but the demands of all that may mean you’re neglecting your child’s future needs.
What would happen if, perish the thought, you and your spouse shuffled off this mortal coil? Have you chosen who you’d want to raise your precious progeny – and would they agree to it?
Or less dramatically but equally financially devastating: what if your household income plunged or your family unexpectedly faced an enormous, game-changing expense?
Here, in easy-to-understand terms, are the five steps to protecting your children’s future.
1. Make a Will
Becoming a parent means becoming responsible for any eventuality, as unpalatable as it may be. A Will lays out not just who gets your assets if you die, but also who would look after your children. The first and even subsequent children necessitate a new Will, if indeed you have one at all.
How to make it? Dirt-cheap DIY Will kits are available from newsagents but can be more easily contested; safer is to make a Will either with your solicitor or through your state’s Public Trustee, which you may have to appoint executor – in other words, get to administer your estate. Using the Public Trustee will usually be free up front with an admin fee on settlement.
2. Give enduring power of attorney
Hand in hand with making a Will should go the above. Giving someone power of attorney means giving them authority to make important financial decisions for you if you were to – again, this isn’t pleasant – lose mental capacity. These decisions might include accessing your bank accounts or selling your property to pay your bills and so will be vital to your kids’ financial security. Naturally the person you choose needs to be diligent and honest (you can revoke it if they prove otherwise).
This legal document can be again bought at a newsagency, or prepared by a solicitor or for free by your local Public Trustee if you appoint it attorney. Your anointed person needs to sign the acceptance part of the form.
3. Amass a cash stash
Blow a car engine or discover termites in your home and your family’s solvency may be in jeopardy… unless you have a fat emergency fund. At least three months of after-tax salary is ideal, and preferably six. This should be instantly accessible in either an at-call high-interest savings account or, if you have a mortgage, in an offset account held alongside of it.
4. Take out risk insurance
This is a catch-all term for life, total and permanent disability (TPD) and income protection insurance. With names that pretty clearly explain their purpose, life and TPD insurance pay a lump sum on death or disability respectively while income protection replaces your salary on accident or illness. All may be key to securing your dependents’ daily needs but unfortunately income protection insurance, in particular, is expensive. Bear in mind it’s tax deductible and you can cut the cost further by opting for a waiting period before payments commence equal to your emergency fund above – say, three months. You also need more life and TPD insurance than you might think: enough to repay all debts, maintain and educate your children until age 18 or beyond, and possibly to replace an income.
5. Pay off your mortgage
Nothing safeguards your loved ones like a fully paid off roof over their heads. Achieving this faster also frees up a huge amount of money for their upkeep – paying an extra $200 a month off a $300,000 mortgage at the average 6.3 per cent interest saves $64,000 and gets you out of debt nearly five years early.
And there you have it – five steps to protect your family that are not that hard, but could save them a great deal of hardship.