Are you financially prepared for a being a mom? Samke Mhlongo provides steps that you need to take towards planning for a baby. Pictures: XX
Every time my daughter’s birthday comes around, I can’t help but think back to that sunny Cape Town afternoon when I found out I was pregnant. With both hands on his head and a look of sheer horror on his face, my then university sweetheart let out the loudest shriek I had ever heard when I told him the news: “I see two lines, I’m pregnant!”. It was hilarious at first, but then reality quickly set in. I was only 19 years old and he a mere 22. What would our parents say? What would our university mates say? And most importantly, could we afford to look after this unplanned baby?
WHEN CAN YOU AFFORD A BABY?
“You should be putting at least 20% of your net income towards savings. And, spending no more than 20% on servicing consumption debt such as credit cards and personal loans,” says financial planner at Liberty Life, Tsungai Mudekunye. My university sweetheart and I were not saving when we found out we were pregnant. But, we were lucky enough to not have debt and were still receiving help from our parents. Without this help, we wouldn’t have been able to handle what I consider the biggest curveball of my pregnancy; medical complications and the surprise expenses they came with.
Unplanned bills for medical complications and increased gynaecologist visits were the biggest surprise costs we faced. Tsungai agrees and gives an example of how the cost of having to go from a natural birth to a Caesarean section (C-section) can cause a serious dent in your pocket. “If you have medical aid authorization for a natural birth which costs about R20 000, but end up needing an emergency C-section which costs about R50 000, you may need to pay the balance yourself,” she cautions. Internationally accredited money coach and author Busi Selesho adds that surprise expenses continue well into the child’s first three years. “New parents always get shocked when they realise that their nanny, who worked only a week or two in December, needs to be paid her full month’s salary and a 13th cheque as well! And, not only that, but you will still need to arrange for alternative childcare (at an extra cost) over the holiday season.” One way of eliminating the element of surprise is by drawing up a budget of what your life will look like after the baby arrives, ensuring you have set aside the money to fund it. It sounds simple in theory, but difficult to implement because with so many investments available, which one is best?
BEST INVESTMENTS WHEN HAVING A BABY
The first financial investment you should consider is not an investment per se, but an insurance; medical aid. “You want to get medical aid before getting pregnant, otherwise the pregnancy will be treated as a pre-existing condition. Most medical aids won’t provide cover during your pregnancy,” advises Tsungai. She adds that if you cannot afford comprehensive medical aid, then ensure you have “gap cover” for those expenses that are higher than the prescribed medical aid rates. The second most-important investment will be for education. Tsungai believes that long-term investments such as education policies, Education Trust Funds (ETF) and Unit Trusts are best for this purpose. Busi adds that Tax-Free Savings Accounts (TFSAs) are also attractive, more so when the investment is taken out in the baby’s name, thereby maximising the annual (R33 000 pa) and lifetime (R500 000) contribution allowances. “You must remember the power of time and compound interest. The longer you leave the monies invested, the higher the compound interest. And, your child will get to university knowing that their fees are taken care of,” says Busi. When it comes to funding the baby’s daycare and pre-school needs, Tsungai believes ETFs and Unit Trusts are best as they are highly tax efficient and have relatively lower management fees. “What’s also nice about ETFs and Unit Trusts is that they do not form part of the estate, and if one of the baby’s parents were to pass on, those monies would be paid directly to the beneficiary without having to wait for the estate to be wound up.” Tsungai is particularly close to home for me as it was my late father’s education policy that kept me in university over the 18 months that it took for his estate to be wound up.
TIPS FOR PLANNING AHEAD
We can all agree that having a baby is a joy and blessing, but it can also be a source of stress and anxiety if you haven’t properly planned for it. Planning ahead is not easy, but here’s a good way to start:
BEFORE BABY ARRIVES
- Medical Aid: Make sure you have it. But, if you are already pregnant, plan for surprise expenses such as medical complications.
- Baby Shower: Take out a gift registry for your big-ticket items such as a pram, cot bed and car seat. It’s easier for your friends and family to contribute a little amount towards a large gift, than for you to end up with many little gifts that will be useless by month four of baby’s life!
WHEN BABY ARRIVES
- Medical Aid: Ensure you are clear on what the medical aid will cover during your childbirth and hospital stay. Ensure that all costs are higher than the approved medical aid rates are specifically spelled out for you.
- Work according to a calendar: This is effective as it will clarify your maternity leave, what type of help you will need and how much it will cost.
YEAR 1 AND BEYOND
- Education: Undoubtedly the biggest cost you will incur for your child. It’s best to start researching the best ETFs and Unit Trusts for your investment and growth needs.
Learn from other parents through blogs, books or online community groups for hints and tips on planning ahead. Many of them have cute checklists and printout organisers, too! We all want to give our children the best future and the only way to do so, is to plan for it.