Be prepared for when kids come
FAMILY PLANNING: IT’S MORE THAN JUST NAPPIES AND SLEEPLESS NIGHTS – YOU NEED INVESTMENTS TOO
Siba Njoba, advisor at Masthead Financial Planning, assists a reader who is about to get married and is planning children.
Question: My husband and I are planning to start a family in the next year. We have some credit card debt, are paying off a car and are renting for the next year or two. Collectively we earn just under R40 000 after tax. I am on a medical aid plan with a full hospital plan and savings without gap cover. I would get two months’ paid maternity leave. What expenses, investments etc should we take into consideration?
Answer: I would strongly advise that you review your medical aid plan, to ensure you have comprehensive cover for gynaecologist visits, and that your hospital is close to your home.
Yes, gap cover is essential, as it covers the shortfall between medical aid rates and actual procedure costs.
I would also recommend that you consider sickness cover, in case of complications. Sickness cover pays out the equivalent of your monthly income in the event of illness, injury or sick leave and can be a short-term solution. It also provides cover for unpaid maternity leave.
In preparation, I would encourage you to start saving for all your child’s immediate expenses: from the monthly spend on items such as formula, nappies and a care giver, to his or her education.
A tax-free savings account or a unit trust portfolio would be ideal vehicles to save for education costs. You can access the saved funds as and when you need them.
Also, consider short-term to long-term strategies to best meet your family’s financial needs. For example, in saving for the child’s immediate needs, you could invest the money in a portfolio that is suitable for the short to medium term, while saving for education can be put in a portfolio geared towards a long-term strategy investing in growth assets and equities, considering the investment time horizon and risk profile.
Once the baby is born, you may want to have an extra month of maternity leave, so make provision for any extra unforeseen expenses. Ask your human resources department about the process of claiming from the Unemployment Insurance Fund, as well as expected payments.
Debt management
It is also important to have a debt reduction plan in place.
Teamwork is key: find creative ways to trim the family budget so you can allocate more cash to your savings. Cut back on luxuries and review your life policies to ensure you are adequately insured.
Also, you could hike your car repayments to shorten the debt-repayment period and reduce interest costs. Do the same for your credit card. Pay off the smallest amounts first.
Wishing you well in your journey to financial freedom.