Financial tips for new parents
Becoming a parent is one of the most exciting things that can happen in your life, but if you’re not prepared for it financially, it can quickly become extremely stressful. With someone relying on you to care for them now and for many years to come, you’ll want to make sure your finances and estate plan are set up properly to support you through parenthood. Here are some items you’ll want to consider prioritising as new or soon-to-be parents:
As you likely already know, having a baby can be expensive. Recent calculations put the cost of raising a child for an average middle-income family at R1,681,470 from birth to age 18 (not including their tertiary education) (Cape Business News 31 Oct 2022). However, this will differ from household to household and depends on various factors and the real cost could amount to significantly more. With inflation the cost of raising a child could easily be closer to R3 million from birth to age 18.
Creating a budget breaking down the amount and timing of household expenses will help ensure your income can support your obligations and that you’re allocating your money in alignment with your goals and priorities. There is likely to be a reduction in your income at some point throughout maternity and/or paternity leave, and by planning in advance you can save to account for any income shortfall you might experience. In addition, there will be new expenses such as nappies, baby formula, clothing, nursery decor, education savings, childcare and
Add your child to your medical aid plan
Register your child as a dependant on your medical aid and gap cover as soon as possible after birth. Most medical aids have a time limit within which a baby can be added to a plan without applying any conditions. Once your child is registered with Home Affairs, provide your medical aid with a copy of his/her birth certificate to ensure that all ensuing medical care is covered by the medical aid. Check that you and your partner are on the most appropriate medical aid plan. If your newborn baby has any specific medical needs, you may want to consider changing or upgrading plans for the following year. The first few years of your child’s life can be particularly expensive when it comes to medical costs, so think carefully about a plan that meets your family’s needs.
Review your life insurance
Although nobody wants to think about leaving their loved ones behind, taking out life
If you already have life insurance, you’ll want to consider whether the amount is sufficient as well as update your beneficiary nominations to ensure they reflect your current wishes.
Review your Will
While it could be argued that every adult should have a Will, there is no question that every parent needs one. There are many uses for a Will, but its most important use when it comes to parents with young children is the ability to appoint a guardian to care for them in the event both parents pass away. Without a Will in place, you’re choosing to leave this decision up to the courts to decide.
You should also consider setting up a testamentary trust in your Will which will house any assets bequeathed to your minor child until he or she is old enough to take care of themself as well as stipulating the age you want your minor children to receive their inheritances if you would prefer them be older than the default age of majority in South Africa, which is 18 years old. In the absence of a valid Will with trust provisions, your executor may be required to pay your child’s inheritance over to the Guardian’s Fund
If you already have a Will, great! But you’ll want to ensure it is up-to-date by adding a legal guardian as well as adding your children as beneficiaries or contingent beneficiaries.
Start Saving for Education
The cost of a child’s education has been on the increase over the last 20 years. The upward trend tends to increase with inflation (CPI) +2% for education fees. A recent study revealed that at the current trend, the cost of education in 2035 will be as follows:
• Public Primary or High School: R149 800
• Private Primary School: R366 700
• Private High School: R588 800
• University: R254 700
With these crazy numbers in mind, parents should start saving for their child’s future as soon as possible.
Increase Your Emergency Fund
The purpose of an emergency fund is to protect you from incurring high interest debt or liquidating investments in the event of unforeseen expenses, which are now much more likely with children in the picture. If you already have an emergency fund, now is a good time to reevaluate whether it’s sufficient based on your additional monthly expenses. If you don’t have an emergency fund, start setting aside funds until you reach a level of savings you’re comfortable with based on your unique circumstances.