Plan to pros­per

Proper fi­nan­cial plan­ning is the key to fi­nan­cial se­cu­rity when your fam­ily starts to grow, says Riëtte Grob­ler

Your Pregnancy - - Financially Ready For Baby -

IT IS EN­RICH­ING to have chil­dren, but don’t be fooled – it’s ex­pen­sive as well. Plan­ning ahead and hav­ing a sound fi­nan­cial plan can save you a lot of un­nec­es­sary ex­pense and stress in the fu­ture, says Jonathan Brum­mer from SmugMoney, a fi­nan­cial plan­ning ser­vice. “Hav­ing a baby is a big step and prospec­tive par­ents should ide­ally sort out their money af­fairs be­fore the preg­nancy,” says Jonathan.

TAKE 5

A new baby means new ex­penses; some im­me­di­ate and some as the child grows older, say Charné van der Walt from Lemons into Le­mon­ade fi­nan­cial plan­ners. Charné says prospec­tive par­ents should pay at­ten­tion to these five as­pects of fi­nan­cial plan­ning: 1. Monthly bud­get changes. With a child in the house the fam­ily’s monthly bud­get will change. If you plan to have a baby far in ad­vance, you have some ex­tra time to save in order to cover some of these ex­penses, but cer­tainly re­con­sider your bud­get as soon as you can if the preg­nancy has been a sur­prise. Take ev­ery­thing into ac­count that will have an ef­fect on your in­come. New ex­penses in­clude pay­ing more for your med­i­cal aid as you will have an ex­tra mem­ber. 2. Build an emer­gency fund. This can be an amount equal to three months of in­come (af­ter tax and de­duc­tions). Oth­er­wise set a goal that your emer­gency fund should cover at least six months’ worth of min­i­mum costs. 3. Save monthly for ed­u­ca­tion. But how much? Ask your bro­ker to help you work out what ed­u­ca­tion will cost from playschool to ter­tiary level. This cal­cu­la­tion must take into ac­count yearly in­creases and whether your child will at­tend pri­vate or gov­ern­ment school. If you start sav­ing even be­fore the birth, you have 18 to 20 years to save. You don’t have to buy an ed­u­ca­tional pol­icy – a cash sav­ings ac­count at the bank from which you can with­draw ev­ery month as your child pro­gresses at school is ad­e­quate. Con­sider a more for­mal

sav­ings plan for ter­tiary ed­u­ca­tion though, such as a unit trust ac­count. 4. De­cide how your fam­ily will be taken care of if the bread­win­ner can’t earn any­more. Put ad­e­quate life in­sur­ance and dis­abil­ity in­sur­ance mea­sures (a once-off amount if you are de­clared med­i­cally un­fit to work) in place so that debt can be paid off, your fam­ily can main­tain its life­style and so that there are funds for your child’s ed­u­ca­tion and your monthly ex­penses. 5. Make sure you have a tes­ta­ment. Your tes­ta­ment has to change in two ways once your baby has been born. Firstly, a tes­ta­ment trust is usu­ally in­cluded as chil­dren un­der 18 may not in­herit in their own name. Also, trustees need to be ap­pointed. This per­son will be in con­trol of your child’s money un­til a cer­tain age. Se­condly, a guardian or guardians need to be named in case both par­ents die. Choose some­one who shares your val­ues and who can af­ford it fi­nan­cially.

MA­TER­NITY LEAVE

In South Africa women are en­ti­tled to four months’ ma­ter­nity leave. Em­ploy­ers are not legally re­quired to pay you dur­ing this time. This is where your emer­gency fund will be use­ful! You are en­ti­tled to ap­ply to the Un­em­ploy­ment In­sur­ance Fund if you have con­trib­uted to it through a salary de­duc­tion, says Charné. “The amount your re­ceive will de­pend on fac­tors such as how long you have been em­ployed and what the in­come was on which your pay­ment to the fund was based.” You should ap­ply for this money as soon as your ma­ter­nity leave starts. If you re­sign, you can’t claim.

IF YOU WANT TO STOP WORK­ING

“Make some cal­cu­la­tions ahead of time to be sure that you can af­ford to stop work­ing and to have a plan of action, if this is some­thing you’ve been con­sid­er­ing. This could in­clude mov­ing debit or­ders to your part­ner’s bank ac­count,” says Charné. “A plus point is if both par­ents’ cars are paid off and if you have no short term debt.” Take the fol­low­ing fac­tors into ac­count to de­cide whether you can take a fi­nan­cial risk: the size of the new bread­win­ner’s in­come in com­par­i­son to the loss of salary when you stop work­ing; the ex­tent to which the miss­ing salary con­trib­uted to house­hold ex­penses and other im­por­tant ex­penses such as your med­i­cal fund, and also think about changes you can make to your bud­get, such as de­lib­er­ately spend­ing less on lux­ury items. Start do­ing this plan­ning be­fore your baby ar­rives, so that it doesn’t feel like such a shock when you can sud­denly af­ford less.

THAT FIRST CAR

“If par­ents have a few ex­tra rands in their bud­get af­ter all the ex­penses have been dealt with, an in­vest­ment in the child’s name is a good idea,” says Jonathan. “This can help your child buy a car later, or even put down a de­posit on a prop­erty.” He dis­cour­ages par­ents from open­ing a tax-free sav­ings ac­count in their child’s name, though. “A unit trust ac­count is a better op­tion, as with that they are not de­prived of the ad­van­tage of the ac­count once they start earning an in­come.” TIP: Jonathan says that tax-free sav­ings ac­counts are a better op­tion than ed­u­ca­tional sav­ings ac­counts, as the lat­ter of­ten come with higher fees and fix pe­ri­ods and penal­ties if you want to change any­thing.

RE­MEM­BER ONE DAY

✓ Re­tire­ment fund. “If par­ents stick to their re­tire­ment goals, it means that they do not put fi­nan­cial pres­sure on their chil­dren in later years,” says Charné. If your plan­ning for your se­nior years is lag­ging a bit, Jonathan sug­gests that you in­crease the monthly amount that you are cur­rently sav­ing. ✓ Life in­sur­ance. “We use our as­sets and in­come to pay for our ex­penses and to save and plan for other goals,” says Jonathan. “The goal of life in­sur­ance is to make sure that these goals can still be achieved even if both par­ents were to die. As a ba­sic guide­line you need 15 to 20 times your yearly in­come as life in­sur­ance.”

BYE-BYE NEW CAR

Whether you can still af­ford a new car, or do ren­o­va­tions to your house once baby has ar­rived, will de­pend on how fi­nan­cially se­cure you are. This means that you have no run­ning or short term debt, you have an emer­gency fund, and you live ap­prox­i­mately 30 per­cent be­low your in­come level, says Charné. Jonathan adds that a good fi­nan­cial plan is your best as­set. “A fi­nan­cial plan is a process by which you find out what your goals are and how you should pro­ceed to achieve them. It calls for a dis­ci­plined ap­proach where short and long term goals are weighed up against each other.” Try to in­clude a bit of spoil­ing money in the bud­get, such as an evening out while granny and grandpa babysit, says Charné. “Talk openly and in a pos­i­tive manner about your fi­nan­cial dreams. Keep your dreams alive, even if you can’t af­ford them right now.” YP

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