How to plan for a baby

2011-04-30 09:44

Bundles of joy are great and having a baby is a happy event. But how many of us consider the full extent of our commitment when we bring a child into the world?

Making sure your own finances are in order is actually the best gift you can give your child.

Most financial advisers agree that planning should ideally start a year or two in advance. Your first job, as a parent-to-be, is to start saving as soon as you start trying to conceive.

According to Eunice Sibiya, head of consumer education at First National Bank (FNB), one should put together a detailed budget and consider where you can cut back with your new priorities in mind.

What are your monthly expenses? Are they covered? What do you have left over after your monthly expenses and what can you save?

Most importantly, work on becoming debt-free. “Pay off as much of your debt as possible,” says Sibiya. “You should ideally have a ‘baby fund’ equal to at least three months’ worth of expenses, so killing debt should be your number-one priority.”

Budgeting for baby’s expenses
Medical costs aside (see sidebar), you need some basics. The best thing is to ascertain what’s really necessary and what’s just nice to have.

Avoid walking into baby shops without a list, and stick to the list! It is just too easy to get caught up in all the cute and fancy stuff that is on the market today.

Sibiya suggests it’s more important to think long-term here, so rather than buying a designer crib, put some money aside for your child’s education.

For your child’s naming ceremony ask people to put money into an education fund rather than gifts.

“A baby won’t care whether furniture is second-hand or clothes are hand-me-downs,” says Sylvia Walker, market development manager at Old Mutual

“It’s an emotional time, so people go overboard in terms of luxuries. But you can get into debt – some people even take out an extra bond to furnish a nursery, which is a really bad idea.”

The best is to spend sensibly and adjust your lifestyle. That way, you might be able to afford some of those nice-to-haves, too.

And if you think this is depriving your child, think about this anecdote. Warren Buffett, one of the richest men in the world, refused to spend money on a crib for his son. This was obviously before he became mega wealthy, and he felt the money was better saved.

His son slept in a drawer for his first few weeks before moving to a cot. A few years ago Buffett gave both his children $1 billion to use for charitable works. His son Peter used his billion to form NoVo Foundation, a non-profit organisation dedicated to empowering women and girls around the world.

In light of all that, would a crib have been worth it?

Preparing for time off work
Company policies differ around maternity leave, so it’s crucial you speak to your HR manager and find out if your company offers full pay, part-pay or no pay for maternity leave. This will determine how you will manage your finances.
 
Every company has its own polices,. According to Old Mutual large companies tend to offer 80% pay for four months, 64% for five months or 53% for six months maternity leave. But make sure you know what they don’t pay.

For example will they continue to contribute to your medical scheme? If you take unpaid leave will they continue to pay the employer’s portion of your retirement benefit? These can be nasty surprises if they don’t.

Also, if you don’t return to work immediately, will your company allow you to work flexi-time, or half-day? The most important factor here is finding out exactly where you stand in terms of the rules and regulations of your employer.

Michelle Human, senior legal adviser at Liberty Retail SA, suggests you read your employees’ handbook so you’re fully prepared before you meet your HR manager. You’ll know what questions to ask and you’ll also know your rights.

“Time off work means reduced income or loss of income, so you have to think carefully about your options,” advises Walker.

“Set aside at least three months’ salary to cover expenses and don’t cash in your pension. You will lose the time you’ve saved and you can’t get that back. You may have easy access to cash but you’re sacrificing your pension, which you’ll need later on.”

If you want to take extended maternity leave or your employer does not pay maternity benefits, you can apply to the Unemployment Insurance Fund (UIF). Find out what percentage of your income UIF will pay.

Sibiya says it is important to fill in all the forms (including bank forms) and submit them as soon as possible. This is because there’s a delay, so it may take time to get that money.

Managing your finances
» Find out if your insurer will let you put a few months’ freeze on a policy – and what the consequences will be.

If you simply have to start paying again after those months, that’s fine, but if you have to pay penalties, you may not wish to go this route. Ask your broker or insurer what the implications will be.

» If you really need to, you can ask your bank if you can only repay the interest on your bond or car repayments while on maternity leave.

This, however, should not be your first choice as it will increase the repayment period.

» It is important to add your child to your medical scheme immediately. Remember this will affect your premium which will increase by around 20%. Even if you do not belong to a scheme when you fall pregnant, join up anyway.

Your pregnancy will be excluded as a pre-existing condition, but according to David Bombal, the marketing and distribution manager at Old Mutual’s Health Solutions, a baby born into the scheme will be covered immediately, so if the newborn has health complications the costs associated with the child will be covered (but not the birth or for the mother).

So even if the mum hadn’t been covered the child would be covered from birth in full according to the plan they are on.

» Don’t forget that you can still work from home – freelance or perhaps turn a hobby into a money-generating exercise.

It doesn’t have to be an “all or nothing” scenario. Just don’t be taken in by too-good-to-be-true work-from-home opportunities.

» Next week we have a great book giveaway which will help you get your finances in tiptop shape.

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