It goes without saying that the birth or adoption of a child is one of the most rewarding and significance of life’s events. Financially, however, for many families it is generally regarded as one of the most challenging, as the arrival of a new baby raises several questions relating to money.
New parenthood naturally comes with new financial responsibility. A baby is another mouth to feed, clothes, entertain and educate; all at significant cost. The change in lifestyle and increased expense generally arrive at a time when a young couple is just starting to build assets, can be immense. Here are a few tips as you prepare for the new arrival.
Make a budget
A drop in income and an increase in expenses mean that you need to develop a household budget. Begin early to start to review and estimate current and future expenses, from nappies to university. Be realistic in your spending and don’t be tempted to over-shop.
Calculate roughly how much you will need to provide for all the costs. Will your income be enough to cover all these additional expenses? Are you or your spouse in a position to boost income at this time through overtime, freelance or contract work? If there are gaps, you may have to review your living expenses and adjust your lifestyle, accordingly.
Start saving early
As soon as you decide to start a family or as soon as you know that you are expecting, start to set aside some money on a regular basis to cover looming expenses; this will be very useful when the baby is born. Open a money market account or other short-term savings vehicle where you have easy access to the funds. Your emergency fund to cover at least three months’ worth of living expenses is more important now than ever.
As far as possible, try to reduce your high-interest debt before the baby arrives; you don’t want to be overwhelmed by high outstanding balances during a time where there is an additional person to provide for and less income.
Who will take care of your child?
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.
Nowadays, most households must rely on two incomes to fulfil family goals. Having a baby has implications for family income, as it usually means a reduction in one partners’ income if they opt to stay at home to raise the child. After 12 weeks of maternity leave with full pay, should a mother require more time away, she may have to take a reduction in salary depending on the circumstances. 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.
Are you insured?
There are particular times in life when assets, responsibilities and obligations change. This offers a perfect opportunity to review your financial plans and put your affairs in order. With a young family depending on you, they need to be protected if your life changes or anything happens to you. Insurance should be one of the pillars of your financial plan and there are different levels of cover to choose from.
If you don’t have health insurance, get some immediately either through your employer’s plan or privately. Does your employer’s plan cover medical care for you during pregnancy and for your new-born baby? A new born is naturally very susceptible to disease, so having medical coverage for the baby is important. Go through the policy carefully so you know what it covers.
Review your life insurance
Most of us avoid or delay estate planning as it is hard to think about the possibility of our early demise. Do you have a life insurance cover? As morbid as it sounds, life insurance can provide needed funds for your children’s care and education in the event of your death. For most families, the need for life insurance is greatest early in life; this usually decreases as the family ages and accumulates assets.
This is also a good time for couples to review financial documents, including a 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.
The funding of your child’s education is likely to be one of the greatest financial challenges you will face and we will address this issue specifically in due course. Many new parents are surprised by how expensive a child can be. But through careful planning, budgeting for the baby, and saving from the start, you can welcome your baby into the world with fewer financial worries.
NIMI AKINKUGBE
