As newly expectant parents, the months preceding the arrival of a child are incredibly exciting and busy. Between preparing your child’s room and stocking up on toys, clothes and nappies, it can be difficult to turn your mind to the question of ensuring that you are financially prepared for the new addition to your family.
But if you want to avoid being caught out by any hidden surprises or expenses down the road, the sooner you adjust your budget and update your financial plan, the better.
Many new parents underestimate the hidden costs of having children, and by not making room for it in the budget as early as possible, could risk falling into debt or unintentionally impacting a family’s financial future.
The good news, however, is that by taking the right steps and saving as early as possible, you and your family will be able to enjoy a far brighter and more secure financial future.
With this in mind, here’s a checklist of five basic points to consider as part of your financial planning when welcoming a new child into the world.
1. New living expenses
Perhaps the most obvious point on the checklist, new parents will be aware of the many hidden lifestyle costs of a child, ranging from once-off purchases such as baby furniture, prams and car seats, to ongoing expenses such as food, clothing and sanitary items.
Begin the process of rebalancing your budget by re-examining your current living expenses and looking for areas where you can cut back, whether these be your own new clothing purchases, nights out at restaurants, holidays or even possibly your grocery bill.
2. Medical expenses
Examine your medical aid policy carefully to check what is covered both before and after the birth of your child.
Many of my colleagues have highlighted, for example, the unexpected expense of new types of prenatal scans and extra gynaecologist visits for high-risk pregnancies, which may not be covered by your medical aid.
It is also important to remember that you will need to add your child to your medical aid plan once they are born. You could further consider purchasing gap cover to protect against any additional medical expenses.
This is one of the biggest expenses attached to having a child, especially as the average cost of education has risen comfortably above inflation for several years.
Then there are additional unforeseen costs often attached to schooling such as extra-mural activities and tutors, books, uniforms and school trips – especially if your child is gifted in, for example, sport or music.
It is therefore wise to implement a savings strategy for educational expenses as early as possible, and to consider starting an investment plan, tax-free savings plan or taking out an educational policy.
Given the many expenses already mentioned, it is vital that you review your long-term insurance policies to ensure that your family is adequately protected against the loss of a parent through critical illness, disability or even death. While this may seem daunting, you will be able to enjoy far greater peace of mind if you ensure that you have provided financially for your child’s future no matter what lies ahead.
You may wish, for instance, to adjust your life policy to cover your child’s future living and educational expenses, as well as potentially provide for a caregiver too.
It is natural to want to give your child the best of everything in life, and with the numerous other demands on your budget, it is easy to make the mistake of neglecting your own savings needs, especially your retirement savings.
Remember to continue to save towards your own goals – the power of compounding means there is no substitute for time in the market, and it will not be easy to make up for lost time later.
If you are daunted or confused by any of these steps, consult a trusted financial advisor for professional assistance in successfully navigating the process.
An advisor will be able to help you understand how a child may impact your financial planning, guide you in ensuring your family’s financial protection, and advise you on implementing a successful investment strategy to ensure your family’s financial stability.
Anelisa Mti is advisory partner at Citadel.
The views and opinions shared in this article belong to their author, cannot be construed as financial advice, and do not necessarily mirror the views and opinions of Moneyweb or The Citizen.