Having a child can wreak havoc on your bank account, but planning ahead can help new parents tame the financial tumult. Here are six financial planning tips to consider when preparing for a new baby.
Having a child is exciting, and is likely to be one of the most rewarding things you’ve ever done in your life.
But temper tantrums aren’t the only chaos you can expect. Your finances might also be thrown into havoc, blindsiding you and your spouse with unexpected expenses.
So if you’re planning to get pregnant, or are already anxiously awaiting the imminent arrival of your little bundle of joy, you’ll want to plan your finances so you can better cope with the rocky financial road ahead.
Here are six financial planning tips to help prepare new parents (and their bank accounts) for a baby.
1. Create a household or baby budget
Financial planning is all about getting clarity, so the first thing new parents should do is to set up a household or baby budget.
The earlier you do this, the clearer about your financial position you will be, so don’t wait till your baby arrives to plan your budget. Between taking care of a newborn and adjusting to the demands of parenthood, you may find yourself lacking the time and energy to sit down and plan your new budget.
Of course, there’ll be a little bit of trial and error involved, especially for first time parents. But with online shopping platforms and parenthood websites all around, you should be able to arrive at an estimate that won’t be wildly far off.
This allows you to see if you have adequate finances to support the household with the addition of a new baby, and will alert you to any potential shortfall so you can take remedial steps in a timely manner.
Drawing up a budget also allows you to know whether you can afford to spend on extras, such as post-natal massages, a confinement nanny, or special supplements to aid recovery. If you can’t afford them, consider alternatives, such as asking your parents for help.
Also, don’t forget about birthdays and festivals and other milestones, which you will want to celebrate as they come.
If you start budgeting for those at the outset, you’ll be able to focus on creating great memories with your child without being distracted by financial stress.
2. Start an emergency fund
Now, you may be hesitant to put aside money for a future emergency that may or may not crop up, especially when those matching Baby-and-Mummy jumpers will totally slay on Instagram.
But you don’t need to deprive yourself or your precious little one just to grow your emergency fund. While the number to shoot for is six months of your expenses, you don’t have to rush to achieve this figure.
Instead, focus on a slow-and-steady strategy. Consistently put money left over at the end of the month into your emergency fund, and by the time your child grows out of their Terrible Twos, your emergency fund should also be nicely shaping up.
3. Update your insurance portfolio
With a new addition to your family comes a corresponding increase in your financial needs. After all, your child will be dependent on you for at least 18 to 20 years.
Hence, making sure you have the ability to meet those needs is important. Going to work and earning an income is usually a reliable way to ensure this, but what if an accident or illness robs you or your spouse of the ability to earn income?
This brings us to insurance, and the role it can play in protecting new parents and their family’s future.
If you already have a life insurance policy, contact your financial adviser to include your child. While you’re at it, check that you have sufficient protection, and for risks appropriate to your circumstances. Be sure to update your protection accordingly if anything’s lacking.
If you do not have insurance, now is as good a time as any to set a portfolio up. Family-oriented plans are a good place to start, as they often come with benefits that new parents may not know they need.
You can also look into term life insurance, which is significantly cheaper and can offer comparable protection. However, term life insurance policies do not return a cash value at the end. Contact a qualified financial adviser to help you choose the best option.
4. Check for company benefits
Ask your Human Resources manager for a complete list of employee benefits — you just might be surprised at how many you can tap on as a new parent.
You probably already know about your childcare leave entitlement. But beyond that, your company may also offer several family-friendly benefits such as medical insurance, childcare grants, education scholarships, and corporate passes for recreational activities and venues. There may also be helpful policies such as child sick leave and flexible hours.
The employee benefits provided by your company could be helpful and might also save you some money, so be sure to ask about them.
5. Start saving for tertiary education
One unavoidable big-ticket expense of having children is tertiary education. Unless you’ve given birth to a child prodigy, you’ll have about 16 or 18 years to get ready for this.
Don’t be tempted to sleep on it, and believe things will sort themselves out when the time comes. That is a surefire recipe for disaster.
Instead, if you start saving up for your child’s tuition fees early, you will be able to provide them with more options when the time comes. Sure, our local universities are good enough, but wouldn’t it be nice to have the option to send your child to study overseas, where they can absorb not just book knowledge but also life experience?
Take heart that in Singapore, universities are heavily subsidised by the government, so tuition fees likely won’t be as expensive as you may fear. This further increases your chances of ending up with an excess — if you play your cards right — which you can then enjoy anyway you like.
If you don’t have spare cash to invest, consider investing your CPF monies instead. You can then sponsor your child via the CPF Education Loan Scheme when they are ready for university (but this is only applicable to local learning institutes only).
6. Prepare a will
We know, we know. When you’re staring star-struck at your little angel cradled peacefully in your arms, the last thing you want to think about is the day when you’ll have to part ways. (Here’s a tissue, sorry!)
But writing a will isn’t morbid or inauspicious — it is actually one of the final acts of love you can do for the people that are dear to you.
You see, if you pass without a will (i.e. being intestate), the state distributes your assets according to established laws, which may contradict your wishes or preferences. Also, minor children may be left stranded without legal rights.
Drawing up a simple will (you can start with an online template) can ensure the proper care of your child or children after your passing. This means that besides specific instructions for asset distribution, you can (and should) also appoint an official guardian. This will accord your child and their guardian protection under the law.
Read these next:
Fellow Parents, Can We Raise Our Kids And Still Have Enough For Retirement?
Insurance Plans All New Parents Need In Their Portfolio
Best Infant Care & Childcare Singapore | Fees & Subsidy 2021
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4 Reasons Why You Should Voluntarily Contribute To Your Children’s CPF
By Alevin Chan
An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.