Raising children is one of the most transformative stages in life. There are a range of factors to consider before deciding if and when is the right time to have kids, especially in Singapore. For new parents, the road ahead can be an unpredictable one, and financial preparation is key. Here’s how to consider when's the right time to have kids from a financial standpoint.
You have sufficient insurance
We always hope for the best during childbirth, but it pays to be safe. Think beyond maternity costs in Singapore, the bulk of which is already subsidised or covered by MediSave. Instead, prepare for the possibility of complications during childbirth.
You should buy maternity health insurance, and always speak to your Financial Adviser to find out if you’re sufficiently covered. Maternity health insurance provides coverage if there are unexpected complications during or arising from pregnancy, as well as congenital diseases.
As a guideline, it is not necessary to buy a policy that comes with a savings component - this is any insurance policy that includes a “growth” element, such as also providing a payout for your child’s education later on. This can result in higher premiums, at a time when you need cash on hand to deal with any immediate, unforeseen problems. The policy you buy should emphasise protection.
Your emergency fund is intact and ready
Build up an emergency fund, consisting of about six months of your income. It may take a while to do this, but an intact emergency fund is one of the first signs you’re ready to have children.
Besides training you to budget (a skill you will need as a parent), an emergency fund can cover for you in the event you need more time off work. It will also buy you time if an unrelated emergency happens around the time of childbirth, such as an unexpected retrenchment.
Dual or single-income household?
In the short term, you will be a single income household, but decide if this is going to be a permanent arrangement. Whatever your decision, work out the expected income.
After that, spend at least three months living on your new expected income. This will help you to understand the lifestyle changes you’ll need to make, and whether it is sustainable in the long term.
Remember to factor in the cost of childcare or domestic help.
You should find that, even on the new income, you are able to save at least 20% of your monthly household income. Otherwise, you may have to focus on raising your income first.
Note that this trial period can also help build your emergency fund.
Your debt-to-income ratio is under 20% (excluding housing)
Your debt-to-income ratio is the percentage of monthly income that goes toward paying off various loans (e.g. car loans, education loans, personal loans). So if you make S$4,000 a month, and your total repayments each month is S$800, you have a ratio of 20%.
Note that we exclude housing, on the assumption that most Singaporeans will service their home loan via their CPF monies and not their monthly paycheque. If for some reason you service your home loan in cash, this ratio should not exceed 50%*.
If you are too far in debt, focus on paying down your loans before you decide to have a child. Check out SingSaver.com.sg for balance transfer options or debt consolidation loans.
In addition, you can alter your repayment methods near the time of childbirth. During the period when your wife is close to delivering, you may choose to make only minimum repayments on any loans. Do not spend the excess cash frivolously - hold it for emergencies.
Once you have settled the maternity costs, as well as costs such as nursing equipment, go back to making full repayments.
*At any rate, banks at the current time cannot provide home loans in which total repayments, inclusive of your other debts, would exceed 60% of your monthly income. Remember this if you have yet to purchase a home!
You have a place to raise your child
You want to avoid a situation where you’re struggling with down payments on a house, as well as renovation costs, while you’re already tackling parenting expenses.
It’s not impossible to do this, but your bank account could be stretched dangerously thin. Whenever possible, it’s ideal to have a home secured before your child comes along.
Read this next:
How Buying a Multi-Generational Flat in Singapore Saves You Money