Commendable dedication to your child's financial future requires a well-rounded plan. Start with an emergency fund, reduce mortgage debt, and contribute to KiwiSaver. Consider education funds, understand investment risks, and seek expert advice. Educate your child on financial literacy, ensuring a balance between debt reduction and long-term savings.
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“I’m a single mum to a 7-year-old, with a significant mortgage myself and a tight budget already, but I am conscious of wanting to help set up my child for her future – so I am trying to plan ahead. A part of me thinks that tackling my mortgage as much as possible will help create leverage opportunities (even jointly) for her later, but I know cash savings for her will also help a lot. My considerations are: buying a car later; when I was 15, my parents helped me with an interest-free loan for my first car, though I had to have a job to pay it off & a condition was keeping it on the road, uni halls if she wants to go to University (hopefully), a kick start on a house deposit. Though I have full care, her dad does pay child support of around $350 a month. My plan was to segment that and use that for future savings (for her) on the following strategy: $80 per month into KiwiSaver; this put her with around $14,000 in KiwiSaver at 18 as a first home kickstart—$ 100 per month into a managed fund (growth). $170 per month into a savings account, maintaining $2k in a savings account and splitting off the excess into term deposits as the balance is high enough, e.g. when the balance is $4k, create a $2k term deposit and add any savings balance above $2k in the savings account every time it comes up for reinvestment—the split to remain roughly the same as/if the child support amount changes. The reason for savings liquidity is that I’m on a fixed income, and it does give options if other opportunities come up for her to have some funds available (school/sports trips that are more than I budgeted, etc.). Does it seem like a reasonable plan, or would you do it differently?”
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Your dedication to securing your child’s financial future is commendable, and a well-rounded plan should consider various factors.
Begin by establishing an emergency fund for unexpected expenses. This ensures you have a financial safety net before committing to long-term investments.
Reducing your mortgage is a strategic choice since it provides financial stability and lessens your financial burden. Lowering debt is a form of saving and can create opportunities down the line.
Prioritise paying down high-interest debt before focusing on long-term savings, as financial stability for yourself ultimately benefits your child in the long run.
Contributing to KiwiSaver is an excellent choice for your child’s first home purchase. Ensure you thoroughly understand KiwiSaver’s rules and limitations, as they can affect how you plan contributions.
In addition to KiwiSaver, you’ve wisely chosen a managed fund with a growth strategy for potential long-term gains. This is a solid investment approach, but ensuring you’re comfortable with the risk associated with growth investments is essential. Diversifying your investments can also spread risk, so consider discussing your investment strategy with a financial advisor who can tailor it to your specific circumstances.
Engage your child in financial discussions and teach her financial literacy and money management skills as she grows, empowering her to make informed financial decisions.
Regularly review your financial plan and make necessary adjustments to account for changes in your circumstances. Consulting a financial advisor is prudent, as they can provide personalised advice based on your unique situation.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The information in this post is only general in nature and is not personalised financial advice. Please contact us if you want financial advice.
