A beaming young couple share their wonderful news: “We’re pregnant. What should we do now?”
Perhaps the most joyful life event and game-changer for a couple’s financial plan is the birth of their first child. In that spirit, here are the top five baby steps for new parents.

Money matters

As you start to prepare for those inevitable baby expenses, you’ll want to first evaluate what your monthly budget looks like today. By performing a cash flow analysis that breaks down your take-home income, monthly savings, and your fixed and variable expenses, you can identify areas where you can cut costs and bolster your savings. A good idea would be to start a baby savings fund where you set aside money for one-time expenses such as a crib and stroller, as well as on-going expenses such as day-care and nappies.

Learning curve
People are increasingly recognising the importance of a good education and are also aware of its escalating costs. Education inflation historically runs at about 3% per year above the inflation (CPI) figure, so the cost of education

 is generally increasing at a more rapid pace than our salaries.

It is important to know that a money market fund provides returns close to inflation, but more important to consider investments exposed to growth assets e g equities and property that should provide returns well above inflation and education inflation (with the associated risk).
These typically are available in balanced funds or growth funds, which can be accessed via education policies and unit trusts. A savings plan requires taking the appropriate risk to deliver long-term inflation-beating returns.
Unit trusts and investment policies provide ideal vehicles to use as part of an education savings plan, depending on your savings behaviour and requirements.
Most children are ready for school at age seven. If your child is born today, you will be required to save R3 800 per month to send your child to private school and university to do a three-year business degree. This is if you increase your premium with education inflation every year. Remember that your salary may go up every year with inflation too. However, if you keep your premiums level, you will be required to save R8 100 pm.

If you plan to send your child to public school and university to do a three-year business degree and you increase your premium with education inflation, you will only be required to save R1 500 pm. If however you keep your premium level without increasing it yearly as your salary goes up, you will be required to save R3200 pm. Look at a unit trust or endowment, depending on your needs. I will be happy to use a financial planning application to see how much you should be saving each month if you want to invest in unit trusts or in an education policy.
Life matters
The first time you are separated from your new bundle of joy, whether it’s for a few minutes, hours, or days, you may begin to wonder what would happen if you were no longer around to protect him or her. There are many life insurance options available. While each individual situation is different, young parents on a budget may consider an affordable life insurance policy that offers a set death benefit amount sufficient to cover their family’s financial needs. Remember, one of the most important aspects of life insurance is to make sure that if an unexpected event befalls you, your spouse
and children can maintain their economic quality of life.
Long term
Make sure that you nominate guardians to care for your child in the event that both you and your spouse pass away simultaneously. Also establish provisions in

your will that make sense for your children’s specific needs. You may also potentially not like the idea of your child / children receiving all of their inheritance in a lump sum at age 18 if you pass away prematurely. A trust will allow control of the timing of distributions. You could, for instance, elect for one-third of your assets to be transferred at age 25, one-third at age 30, and one third at age 35. Spreading it out this way would reduce the chances that a young adult child might spend an inheritance all at once.
Your Own Retirement
With all of the new baby expenses adding up, it can be challenging to stay the course with your current financial and investment plan. It’s a common misstep for parents to focus their finances around their children at the expense of their own retirement savings. It is advisable that the best way to take care of your child is to take care of yourself (they will thank you later). Your children are counting on you to be there for the long run. Show your kids how you prepare and save for the future. Be a great financial role model for your kids. The sooner you start, the sooner you and your family may achieve financial independence.