What to expect when expecting

2012-08-11 11:14

It is always important to make proper financial plans well in advance of the birth of your baby, writes Liziwe Ndalana

What to Expect When You’re Expecting, the US blockbuster that was released in South Africa in June, puts the spotlight on the journey of parents-to-be as they prepare to become parents for the first time.

This is both an exciting and overwhelming time and once the baby arrives financial planning is probably the last thing on any new parent’s mind. It is therefore important to start planning well before the baby arrives.

It is vital to do a proper analysis not only of your finances, but of your life as a whole.

The cost of pregnancy alone is extremely high, with antenatal visits, gynaecology check-ups and the birth of the child itself all quite expensive.

The first thing you need to do is have a financial plan. You can do this yourself or ask a financial adviser to help you.

You need to review your budget and ideally start putting away money every month to cover the bigger items that you will need for the baby.

By learning to live on a lower amount each month you will know whether or not you can afford the costs of a child.

Once your child is born those savings can go towards your child’s future education or just to pay for those extra medical bills.

Also make sure you take time to ­re-evaluate your medical aid benefits, your will and your life cover in your overall financial portfolio.

Creating a budget
Head of growth market solutions at Sanlam personal finance, Karin Muller, a new mother herself, says you need to take a good look at your finances when planning on expanding your family:

» Evaluate your existing income and expenses and review where both you and a partner are at financially, and where you should start improvising;
» Use your bank and credit card statements to write down your expenses over the last two or three months so you can see where your money is being spent. Also keep a notebook and write down daily expenses. Knowing where money is spent is the best way to find ways to cut back;
» If you are an expectant working mother, find out exactly what income you will receive from your employer and the Unemployment Insurance Fund for the duration of your maternity leave;
» Start thinking about childcare options once you return to work, for example a crèche, day-care or an au pair; and
» Will you reduce your working hours, or take a break from your career for a few years? How will this impact on your finances? Do not use your retirement savings, those are for your future.

Insuring for the unexpected

Once you have a child you have to think about who will care for them if you are not able to.

Life insurance becomes critical in this case. Although it may seem a grudge purchase, if something happens to you it is the most valuable thing you can give your child, along with an education.

Ensure that your policy is enough to cover all your needs, including debt, if you have any.

Nishen Naidoo at Sanlam Life makes the following recommendations:
» How much do you need? Evaluate the cost of your life cover; how much are you currently covered for and how much will you need in future? Find out if you have life-cover benefits through your employer; and
» What can you afford? As much as you want to be prepared for the future, you need to ensure that you will afford those premiums or you might end up losing your policy along the way anyway.

Update your medical aid

You need to immediately notify your employer of your pregnancy and you should evaluate your medical-aid benefits, if you belong to a medical-aid scheme.

It is advisable that you upgrade your medical-aid scheme plan as children are typically more expensive from a healthcare-cost point of view.

If you are not on a medical scheme it is important that you join one even if it will not cover the birth.

If you have not been on a medical scheme before there will be an exclusion period which means the birth may not be covered.

However, your child will be covered from the minute he or she is born, although you must remember to register the child within 30 days of birth.

Considering complications due to premature births can cost up to R1 million, medical cover is very important.

You also need to update your will to ensure that your child is taken care of according to your wishes.

Ann Nel, manager of wills at Sanlam Trust suggests the following checklist for new parents:
» Does the will make provision for your children if both spouses die simultaneously? Do you plan to have more children? If you answer yes to either of these, rather don’t mention names as you may forget to change your will after the birth of another child and then he/she will not inherit;
» Your will should make provision for a testamentary trust, like assets such as possessions/property or belongings to be administered for minor children in the event of both spouses dying simultaneously;
» Majority is as at the age of 18, but you can select any age older than 18 for children to inherit;
» The trust should make provision for income and/or capital to be used for children’s education and general welfare should both spouses die simultaneously;
» Nominate a trustee to administer the assets on behalf of minor children. Trustees administer the assets and a guardian will requisition the trustee for maintenance on behalf of minor children. This means the trustee pays maintenance to the guardian;
» Nominate a guardian to take care of your children;
» Make provision for an alternative guardian should the nominated guardian pass away before you do; and
» If your child has special needs that should be catered for, such as if he or she is mentally or physically challenged, it is very important to specify in your will exactly how you want this handled.

Baby is on the way so keep a sharp eye on the costs of giving birth

1. Uncomplicated natural birth

This costs on average R17 500 at a private hospital, but if there is a complication this can increase to more than R50 000.

Momentum Health covers these claims on average for about 90% of costs. Shortfalls are not necessarily due to benefit design, but rather elements such as specialists billing above the scheme rate, so you need to have money set aside for these extras.

2. Uncomplicated C-sections

These cost approximately R28 000, increasing exponentially in complications.

Momentum Health reports to have had cases of more than R50 000. On average, they have covered 93% of costs.

3. Large expenses

You will need to budget for essential baby items such as a cot, pram, and car seat.

Keep in mind you might need them for a good few years if you are planning on having more children.

It is critical you consider your lifestyle and how you will use these items before you decide what to buy.

For example, do you need a pram that’s outdoor friendly or something small and easy to fit into a car?

Many parents often fall into the trap of investing in the latest gear and equipment that proves impractical or not quite suiting the lifestyle and their babies’ needs.

Avoid this and discuss options with other parents and find out what worked for them and why.

4. Once-off expenses
These include smaller and yet no cheaper items like bottles and feeding equipment, baby bath, bath chair, bedding, etc.

Start compiling a list of items you would need and visit a few shops to investigate options and costs, as the range of items available is extensive and varied.

You also need to think of expenses such as preparing and equipping the nursery with all its necessities.

5. Childcare after maternity leave
A significant m

onthly expense will go towards baby care once the mother has returned to work, should this be the case.

Depending on the baby care option, this could range from just less than R1 000 a month for daycare and crèche, to upwards of R5 000 for a full-time carer or au pair.

6. Other monthly expenses
These can include nappies, baby wipes, toiletries, milk formula, baby food (from four or five months) and baby clothes, as babies grow into new sizes quickly.

These costs can vary from about R500 to more than R2 000 monthly, depending on what products you use and where you shop.

7. Education
Parents should start thinking about the baby’s education.

If you want to be in a position to send your child to a university, you need to prioritise your savings.

It’s best to start putting away an optimal amount from as early as possible in order to benefit from the effect of compound interest.

Depending on the school, you may also need to enrol your child at birth.

You need to prepare for additional medical-aid premiums.

Cut back on extras such as dining out and movies – this will enable you to put money aside for the baby.

» Figures provided by Momentum Health, additional information provided by Sanlam Personal Finance

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