Have a baby by me, baby be a millionaire…or not
So you’re thinking of having a baby? Before you do, you may need to consider a host of items so you’re adequately prepared and fully aware before you embark on this amazing journey.
I always joke with my friends that there is premarital counselling, but never pre-child counselling which is as important. Another joke I make (which my wife hates), is that there is no investment you can make for R20 once off which will yield R2 070 000 over 23 years. This R20 purchase is a Durex condom and the yield is what you don’t spend on a child over that period. Remember people, it is not what you spend, but what you save!
I have read many articles warning people that one child costs over R2 070 000 (R90 000 per annum, no inflation and over 23 years). This article isn’t about the costs per se, but rather what you should look at doing to prepare yourself financially, and many gaps I have seen in other articles and my experience in dealing with clients.
This might be a long read, so perhaps read this with your significant other over a glass of wine, a beer, Vitamin water or a tin of coconut water harvested organically from your patio garden.
To make this easier, I have split this into different sections in case it comes across as “information overload”.
What to do before a baby comes along:
Discuss if *mom is going back to work after maternity. A double income is nice, but a single income household is difficult to get used to.
Compile a budget of potential expenses after speaking to others who have recently had a baby. You might think that you have the bases covered, but there is more to a baby than just keeping it warm and fed.
Look at the costs and possibility of having your own medical aid and not as dependents on each other’s plan. This way the *mom can be on a higher plan with the baby while the **dad is on a hospital plan. I am speaking from experience here.
*I used mom here as I am possibly stuck in the dark ages
**I used dad here for the same reason.
Check to see if your gynae is a covered provider on your medical aid, as well as the hospital you are planning to use. This will help reduce your overall costs.
Make sure you have GAP cover in place and do so before you are pregnant. Many GAP providers exclude pregnancy if you are already pregnant and then start the policy.
The first baby is generally the most expensive as the initial layout costs can be spread across future children. I am referring to baby clothes, cots, mattresses, sterilizing units, prams….you get the picture (and I had to stop as I was feeling nauseous typing this). You don’t have to get everything new. Many people receive clothes, prams etc. and never use them and sell them online. Once again, I am speaking from experience here.
Lastly, have the discussion around how many children you want to have. The saying “the more the merrier” doesn’t work on your wallet (just look at that slip from Taboo when you decided to pay for all your “friends” drinks that one round).
Items that you need to consider when the baby arrives:
Maternity leave is not always paid in full and UIF isn’t great at filling the gap. When you have a lower salary (or none) for 3-4 months, it takes its toll. Save for that possibility.
You need to add this little bundle of joy onto your medical aid. Even though they are small, you will pay a full child premium. If you have twins, it is two child dependents you’re paying for! Read point 3 in the previous section and see if it makes sense for your situation.
Make provision for additional pediatric visits, check-ups with the gynae and if your baby gets a snotty nose. My first born had yellow jaundice and we had to rent a space suit (it looked like one) and a UV light-bed to treat her at home.
Get your Will updated (or get one in sorted!). With this exercise, ensure you have guardians in place (AND THEY ARE TOLD THAT THEY ARE A GUARDIAN) and if a Trust is required due to complications with your child(ren), note it in the Will.
Check all your life policies are updated with your correct beneficiaries noted.
Extra tip: allow people to help. When they offer to take your child for an hour or two, let them! Your mental health (and lack of sleep) can take a toll on you, and paying for doctors and psychologists adds up to the monthly bills.
Work on a budget, even though your child won’t stick to it. A budget will give you an idea of what your monthly bills will be and what is eating away at your disposable income.8. Send those outstanding bills to your GAP provider ASAP. The longer it takes, the more chance your doctors will add interest to the outstanding payments.
Future dated items to consider:
Will you be sending your child(ren) to government or private schools? The cost of education is one of the biggest ticket items on your budget. This choice can impact on all future purchases. If you think I am exaggerating, understand that private school fees are more than double that of government schools and follow their own inflationary increases. You could potentially pay R5 000 per month instead of R2 500 and the opportunity costs become considerable when the second child comes along (that R5 000 per month becomes R10 000 per month).
Look at the area you wish to live in. Do you move into an “inflated/overpriced” area to get your child into a really good government school, or do you move into a place closer to your budget and look at sending your child to a private school. There is a whole debate about buying or renting, but that should have been discussed long before your child comes along.
Be aware that your child going to school will mean they could be studying up to the age of 23 (degree with honors, depending on if there was a gap year taken). This means they will be on your “payroll” for 23 years and then possibly another year while they get their first paycheck. You need to take this into consideration when doing your future planning for retirement and budgeting on living within your means.
Policies and savings:
If you have risk cover through your employer, find out if there is some sort of education cover if you die or are disabled. This will assist you in rather putting money into savings for future expenses rather than taking out another policy and duplicating your cover. If you do not have any cover, look at taking this up in your personal capacity. You should also do the cost analysis of taking out education cover versus increasing your life policy. Once again, I’d like to point you towards David’s fantastic article: Life Insurance 101 – Tips from an Insider
Start saving as soon as you can (if you can). Yes, saving from their birth is fantastic, but not always do-able. Start small and build up when you can. The hardest part is starting (how cheesy is that!).
Look at using the most tax efficient way of investing. I am not referring to ETFs, Unit Trust etc. but rather the product to be used. Some parents take out a Tax Free Savings account in their child’s name, using their own lifetime savings. Others make use of endowments and unit trusts or share portfolios. Each has their own pros and cons, but you need to take into consideration your set of circumstances, what you want for your child and what makes sense financially. Speak to a Certified Financial Planner and they will guide you.
Whether you already have a tiny army or are still contemplating having a mini- human, drop a comment below & share your thoughts!