From Nappies to University

Your bundle of joy presents a bundle of expenses even before they arrive, so it pays to be financially prepared for your new baby. New parenthood naturally comes with new financial responsibilities. A baby is another mouth to feed, clothe, entertain and educate; all at significant cost. Here are some practical tips to help you get prepared.

Make a budget and stick to it

You need to know where you stand financially before the baby arrives. How much do you earn? How much do you spend each month? What is your networth? A budget is the best tool to help you track your expenses. Once you have a clear picture of your financial status, have cut back on your living expenses, and have estimated your upcoming expenses it will be clear what the shortfall is. Do you or your partner have any opportunities to earn additional income through overtime, freelance or contract work? For the moment, don’t be tempted to overshop, new babies don’t really need much. Avoid borrowing if you can.

Create a six-month safety cushion

The earlier you start saving for the new baby, the better. If you are a couple, one of you is laid off or unable to work, these funds will cushion the effect of such a situation; it is even more important for a single parent who may have to bear the costs solely. Try to save up to six months of living expenses for such eventualities. It will be so useful when the baby is born. Place these funds in a money market account where you have easy access. A special “baby account” before you have the baby is a good idea. The funds here would be specifically for the baby shopping.

Reduce your debt

As far as possible, try to reduce your high interest debt before the baby arrives; you don’t want to be overwhelmed by high monthly interest payments at a time when there are additional expenses to cope with.

Childcare is expensive

Will one parent stay at home, work full or part time, and for how long? How much will childcare cost? Good childcare through a day care centre or an experienced nanny is expensive and must be factored into your monthly budget. Review your options ahead of time.

Nowadays most households must rely on two incomes to fulfill family goals. Having a baby has implications for family income as it usually means a reduction in one partner’s income if they opt to stay at home to raise the child. After twelve weeks’ maternity leave with full pay, should a mother require more time away she may have to take a reduction in salary depending on her employer’s policies. Review your maternity leave options so that you know your rights and responsibilities in this regard.

If you decide to stay at home with the children, bear in mind that in reality, an extended absence from work, skills and training, could limit future career options, and therefore your lifetime earning potential. If you do wish to pursue a career, consider maintaining part-time work or continue to develop yourself through training and education while your children are still young.

Have the school conversation

Will your child go to a public or a private school? It may seem premature to discuss education planning now, yet the funding of your child’s education is likely to be one of the greatest financial challenges you will face. Many new parents underestimate these costs. Having these discussions and planning ahead of time is really key to giving your child the best education that you can afford.

Don’t ignore insurance

There are particular times in life when assets, responsibilities and obligations change. The arrival of a new baby offers a perfect opportunity to review your financial plans and put your affairs in order. For most families, the need for life insurance is greatest early in life; this usually decreases as the family ages and accumulates assets. Insurance should be one of the pillars of your financial plan. With a young family depending on you, they need to be protected if your life changes or anything happens to you. As morbid as it sounds, life insurance can provide needed funds for your children’s care and education in the event of your incapacity or death.

Babies can be sickly in the early years and you do want them to have the best pediatric care. If you don’t have health insurance, put this in place either through your employer’s plan or privately. Go through the policy carefully so you know what it covers.

Don’t forget the paper work

Most of us avoid or delay estate planning, as it is hard to think about the possibility of our early demise at such a joyous time. Most people don’t even consider writing a will until their later years. This is a good time to review and update beneficiaries on your financial documents including your insurance policies and your will. Most young people consider it absurd to write a will when they seemingly have so little. Yet one of the most important reasons for having a will has little to do with money. For example, if you do not have clear instructions in a will, the court can appoint a guardian to care for your child and an administrator to manage their assets. Address these issues early on and you shouldn’t have to think about them again until your circumstances change significantly.

By starting early and through careful planning, budgeting, saving and investing for your child, you can welcome your baby into the world confident that you will be able to give them the best chance in life.

Nimi Akinkugbe

Nimi Akinkugbe has extensive experience in private wealth management. She seeks to empower people regarding their finances and offers frank, practical insights to create a greater awareness and understanding of personal finance.

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