Fi­nan­cial plan­ning

Care­ful plan­ning is the key to fi­nan­cial se­cu­rity when your fam­ily starts to ex­pand, says Rita Glover

Your Baby & Toddler - - Contents - YB

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.

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