Financial preparation for parenthood

Prepare for your new arrival by considering key financial aspects such as medical plans, life cover, emergency funds, wills, and education savings, ensuring peace of mind for your growing family.

Steven Swanepoel CFP®

Steven Swanepoel CFP®

Private Wealth Manager

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Financial preparation for parenthood

All parents want to try to set up the best life possible for their kids, and it all starts with planning. Sacrifices will need to be made as you are no longer just concerned about the costs of you and your partner, but also for a new little person on the way. A good starting point is having a detailed budget of your monthly income and expenses. This will outline exactly where your hard-earned money is going and where adjustments can be made.

I am going to touch on 5 things I believe are important to better prepare you and give you peace of mind for when your new baby arrives.

Medical plan – The costs of the birth of a child are very expensive, and you'd want to ensure getting the best value for money concerning your medical plan. There are many different plans out there, ranging from medical aids and hospital plans to medical insurance, and it’s very important to find out which plan suits your family and your budget. Please note that if you are pregnant at the time of activation, then you will get a 12-month condition-specific waiting period. You can also start looking for gap cover options to cover any shortfalls you may need covered, as not all plans cover the full cost of birth.

Life cover – A parent or spouse passing away would be devastating, but some peace of mind can be found in knowing your family is financially taken care of. There is a new financial dependent on the way, and you need to ensure that sufficient funds will be available in the event of either you or your spouse passing away. This could leave a huge financial burden on the surviving spouse, especially when there is an additional dependent. There are also education plans available that can pay funds directly to the institutions in the event of either one of you passing away. This is also a great way to ensure your child’s education will be taken care of in the future.

Emergency Fund – A baby can come with additional unexpected costs. Even once the compactum, cot, nappies, formula, and clothes, etc., have been purchased, there might still be unexpected expenses that pop up along the way. Start putting additional money aside into an emergency fund. Some medical aids have a co-payment, and you need to ensure you have funds for this or start looking at gap cover options to cover the shortfall in the hospital. You should start an emergency fund as soon as possible. I would recommend you set up a debit order for as much as possible while you have fewer expenses.

Will – Decide who the guardians of the children will be and ensure that there is sufficient life cover in place to allow the guardians to take care of your child. It will make be an extremely tough time, more difficult if sufficient finances aren’t available for them to take care of your child. Testamentary trusts are also a tool available to protect funds due to your children in the event of your passing.

Education savings – The cost of education is very high - with education inflation in excess of 10%. My advice is to start investing as soon as your child has been born, if not earlier, for their education costs. The earlier you start, the better to maximize on compound interest. A tax-free savings account could be a great investment vehicle for this. The power of compound interest is the 8th wonder of the world. As a long-term investment, it would be a good idea to invest in a high equity fund.

It’s important for you to do sufficient research to see what your needs are as a family, or even better, speak to a financial advisor to help you assess your individual situation and support you on your financial wellness journey.

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