“What to expect when you’re expecting”, the latest American blockbuster that was released in South Africa in June this year, put the spotlight on the journey by 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 even before the baby arrives.

It is vital to do a proper analysis not only that of your finances, but 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 is expensive.

The first thing you need to do is to have a financial plan. You can do this yourself or ask a financial advisor 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 to carry the costs of a child.

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

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

Creating a budget

Head of Growth Market Solutions at Sanlam Personal Finance, Karin Muller, a new mom 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 of you 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 your daily expenses. Knowing where your money is spent is the best way to find ways to cut back.
• If you are an expectant working mom, find out exactly what income you will receive from your employer and the Unemployment Insurance Fund (UIF) for the duration of your maternity leave.
• Start thinking about childcare options once you return to work, for example crèche, day-care or an au pair.
• 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 cover is enough to cover all your needs, including debt, if you have any.

Nishen Naidoo at Sanlam Life makes the following recommendation:

• How much do you need? Evaluate the cost of your life cover; how much you are currently covered for and how much you will need in future. Find out if you have life cover benefits through your employer
• What can you afford? As much as you want to be prepared for the future, you need to ensure that you will be able to afford those premiums or you might end up losing your policy.

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 expensive from a healthcare cost point of view. An inappropriate option might leave you with a substantial out-of-pocket expenditure.

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

Will

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

Ann Nel, Manager: Wills at Sanlam Trust suggests the following checklist to the new parents:

• Does the will make provision for your children if both spouses die simultaneously?
• Do you plan to have more children?
• If yes to the above, 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.
• Does your will make provision for a testamentary trust, e.g. assets such as possessions/property or belongings to be administered for minor children in the event if both spouses die simultaneously? 
• Majority is as at the age of 18, but you can select any age older than 18 for children to inherit
• Does the trust make provision for income and/ or capital to be utilised for children’s education and general welfare should both spouses die simultaneously?
• Did you 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.
• Did you nominate a guardian to take care of your children?
• Did you make provision for an alternative guardian should the nominated guardian pass away before you?
• Does your child have special needs that should be catered for, for example mentally or physically handicapped? It is very important to specify these in your will.

The cost of giving birth  

• Uncomplicated natural birth:  This costs on average R17 500 at a private hospital but if there is a complication this can increase to in excess of R50 000. Momentum Health covers these claims on average at 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.
• Uncomplicated C-sections: These cost approximately R28 000 increasing exponentially for complications and Momentum Health reports to have had cases over R50 000. They have covered an average 93% of these claims.
• Large expenses: You will need to budget for essential baby items, such as a cot, pram, and car seat. Keep in mind that you might need them for a good few years, if you are planning on having more children. It is critical that 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 that is small and easy to fit into a car? Many parents often fall into the trap of investing in the latest gear and designer equipment that later prove impractical or not quite suiting the lifestyle and their baby’s needs. The best way to avoid this is to discuss your options with other parents and find out what worked for them and why.
• 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 stores 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.
• Childcare after maternity leave: A significant monthly 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 R1000 per month for day-care and crèche, to up to R5000 to R8000 and upwards for a full time carer or au pair.
• 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 around R500 to over R2000 per month, depending on what products you use and where you shop.
• Education savings: In addition to these immediate expenses, new parents should also start thinking about the baby’s education. If you want to be in a position to send your child to a university one day, you need to prioritise your savings accordingly. It’s best to start putting away optimal amount from as early as possible in order to fully benefit from the effect of compound interest. Depending on the school you want your child to attend, you may also need to enrol your little one as early as at birth. You need to prepare for additional medical aid premiums.

Take a critical look at your expenses; you may need to cut back on a few extras such as dinner and movie expenses. This will enable you to put that money into extra pregnancy and baby expenses. (medical figures provided by Momentum Health, additional information provided by Sanlam Personal Finance)

 This article first appeared in City Press