Careful planning is the key to financial security when your family starts to expand, says Rita Glover
YES, CHILDREN ARE EXPENSIVE and this can stress new parents out. The way to deal with it is to plan for the future and take the long view.
We spoke to two experts to get their top tips on how to handle the financial changes that are coming your way: certified financial planner Jonathan Brummer and Charné van der Walt from Lemons into Lemonade financial planners. Here are nine things to consider:
RELOOK YOUR MONTHLY BUDGET
With a child in the house your budget is bound to change. Nappies are expensive, right, not to mention childcare. But also keep in mind that some of your fixed expenses will go up too, such as an increase in your medical fund contribution. For the first time ever you might find yourself exhausting your medical savings before the year is done, so have a look at gap cover too.
BUILD AN EMERGENCY FUND
Aim to make this fund the equivalent of three months’ income after tax and other deductions and keep it somewhere where you can access it without too much trouble such as lengthy waiting periods. Should the pawpaw hit the fan you’ll be so glad you saved this money. Remember, this is not a holiday fund. This is the money you use if one of you were to lose your job, for instance.
SAVE FOR EDUCATION
How much? Get a broker to help you work this out, as yearly increases in fees over your child’s entire education have to be taken into account. The earlier you start saving, the better. You’ve heard that joke: the best time to start saving was 20 years ago. You don’t have to buy an education policy. You could also save with a bank, or buy shares, or open a tax- free account in order to save.
NO MORE BREADWINNER?
Make sure you have adequate life insurance and disability insurance (a single amount that will cover you in case you are declared medically unfit to work) so that you can pay off your debts, maintain your family’s lifestyle and pay for your child’s education if death or tragedy strikes. A website that takes the hassle out of getting life insurance quotes, is comparisure.co.za. Its advisors will help make sure that you get the best coverage for your needs.
UPDATE YOUR WILL
Your will has to change in two regards when your baby is born. Firstly, a trust is usually included because children under the age of 18 can’t receive an inheritance in their own name. A trustee needs to be appointed to handle the money on their behalf until they reach a certain age. Secondly, a guardian needs to be appointed in case both parents die. Choose someone whose values are similar to yours and someone who can afford to look after your child too. Discuss this with the person you have in mind before putting them in the will. If you don’t choose, the master of the high court will appoint someone on your behalf, and this is not necessarily what you would want. Carla Almeida, a lawyer from Pretoria, advises parents to each have a separate will.
PLANNING TO STAY HOME?
Do your calculations before your baby is born to help you decide whether you want to be a stay- at- home mom or not. If your family can get by on one salary, plan your exit from the working world. Shift your debit orders, for instance. It will count in your favour if at least one car is paid off and if you have no short- term debt to deal with. Then consider other risks: can one breadwinner’s salary cover all your expenses and bear the brunt of more medical insurance? Are there luxuries that you are willing to forego in order to stay home? Do these sums as soon as you can, so you don’t resign and only then realise that you can’t afford to stay home.
BABY’S FIRST CAR
If you have a little extra left at the end of the month, make sure you put it away in an account under your child’s name. You can use this to buy that first car when junior gets a driver’s licence, or contribute it towards a deposit on a house one day.
PLAN YOUR FUTURE TOO
Stick to your retirement goals. This way you can be sure that you aren’t a burden to your child one day. If you are already behind on your retirement contributions, increase them as soon as you can. You won’t regret this. As far as life insurance goes, it should cover you for at least 15 to 20 times your yearly income. Anything less won’t really be enough.
WHAT CAN YOU AFFORD?
Whether you can buy the big family car or add on a bathroom when the children start arriving depends how strong your financial position is. But what does that mean, exactly? It means you have no running or short- term debt, you have an emergency fund, you live at least 30% below your income level and you have a financial plan in place. Think about what your goals are and what you need to do to achieve them. Be disciplined in your approach when you weigh up short- term goals and long- term goals. A trick is to also budget for a bit of spoiling money, such as date night. Talk to each other about your dreams.