New parenthood naturally comes with new financial responsibilities literally from nappies to university. A baby is another mouth to feed, clothe, entertain and educate; all at significant cost. Your bundle of joy presents a bundle of expenses even before they arrive so it pays to be financially prepared for your new baby.
Here are some practical tips to help you get prepared:
Budget – A budget is the best tool to help you track your expenses. Establish a clear picture of your financial status, your income, your expenses, your net worth. If the numbers just don’t add up even after you cut back on living expenses and any excess, you will need to consider where the shortfall will come from; overtime, freelance, or contract work? For the moment, don’t be tempted to overshop, new babies don’t really need much so avoid borrowing if you can, apart from some of the baby equipment that family or friends will be happy to lend you. Don’t feel obliged to “keep up;” buy what you can afford.
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.
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 partners’ 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 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.
Will your child go to a public or a private school? It may seem premature to discuss this so early but the cost of education means parents must plan literally years in advance. Having these discussions and planning ahead of time is key to giving your child the best education that you can afford.
There are particular times in life when assets, responsibilities, and obligations change. 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 newborn baby? Newborns are naturally susceptible to early ailments so having medical coverage for the baby is important. Go through the policy carefully so you know what it covers.
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 incapacity or 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 and update beneficiaries on your financial documents including your life insurance 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. Without 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.
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.