Your first child: How to update your financial plan

If you’re expecting your first child, it is only natural to feel overwhelmed at how to start planning financially for her arrival. In this article we break down the expenses that need to be taken into account when preparing for your child’s arrival, and provide advice on how to update your financial plan to ensure your new baby is provided for.

Maternity leave

As soon as possible after your pregnancy is confirmed, speak to your employer about your maternity leave options. As a working mother contributing towards UIF, you can claim for up to four months (121 days) of paid maternity leave and can expect compensation of between 38% and 58% of gross salary. Importantly, bear in mind that you are only able to submit your UIF application once you are no longer receiving your full salary from your employer, so be sure to build this potential cashflow shortfall into your budgeting. While the Department of Labour’s online system indicates that maternity benefits take between 3 and 6 weeks to process, the reality is that they can take 8 weeks or more. The Department of Labour uses the last four years that you have worked to calculate how many credit days you have available. Basically, for every six months that you have worked you receive one month’s benefits up to a maximum of four months. To claim from UIF, you will need to complete a UI.19 form for each of your employers in the last four years. To be safe, phone the UIF and check your status before submitting your claim. To submit your claim you will need an ID document, UI-19 form (s), birth certificate or medical certificate, and proof of bank account, amongst other things. Remember, you will need to submit proof for each month that you are on maternity leave.

Baby budget

We all know that children are expensive so start preparing your baby budget as soon as possible because costs add up quickly. Consider the costs involved in adapting or renovating your home to accommodate a small child. This could include costs such as renovating a nursery, child-proofing plug points and stair ways, or installing a pool cover or pool fencing. You may need to upgrade a vehicle for extra space and/or safety purposes, so consider these additional expenses. Other costs include clothes, toiletries, appliances, furniture, nappies, formula, and baby/toddler activities. Consider setting up a separate savings account ear-marked for your baby budget and then allocate and prioritise accordingly. For instance, buying a good pram and cot now will be a priority, while installing a pool net or fence will only be necessary when your child becomes mobile.

Medical aid and gap cover

While you can only add your new baby to your medical aid and gap cover after the birth, do your medical aid and gap cover investigations now so that you are ready to add your child as a dependant straight after the birth. Check what additional premium you will need to pay to add your child as a minor on your medical aid and gap cover, and factor these costs into your baby budget. While most medical aids request that you register your new-born or adopted child within 30 days, rather be proactive and get the registration documents to your medical aid as soon as possible to ensure that your child is covered from birth or adoption. Find out whether your medical aid offers a maternity programme and be sure to register accordingly. Some maternity programmes offer significant benefits which include antenatal consultations, ultra-sound scans, blood tests and additional screening, approved devices (such as thermometers and breast pumps), flu vaccinations and follow-up visits. Some comprehensive plans also provide for private hospital wards. Check with your medical aid or healthcare adviser what is required in terms of pre-authorisation for your hospital admission. If you are planning to have a mid-wife or doula assisted birth, find out to what extent your medical aid will cover these costs.

Life cover

With a new baby on the way, you and your partner will need to reassess your life cover so as to make provision for her child should something happen to either of you. An effective way of reviewing your risk cover is by doing scenario planning: If I was to die, what financial impact would the loss of my income have on the family? What debt would need to be settled? What level of income would need to be replaced? What about funding for our child’s education? In the event of your death, you may to ensure that there is sufficient liquidity in your estate to allow your partner to pay off the home loan and replace 75% of your current income until your child reaches adulthood. You may also want to make a capital lump sum provision for her education. These are all objectives that your financial adviser will help you quantify and cost so that you can put the right cover in place for your needs. Remember, minor children are not legally permitted to inherit directly, so think twice before nominating your child as the beneficiary on your life policy. If you intend leaving money to your child, rather consider leaving the policy to a testamentary trust (see below). If you nominate your child as a beneficiary to your life policy, any funds intended for her will be administered by her guardian until she reaches age 18.

Education fund

It’s never too late to start saving for your child’s education and the sooner you start the more time your money has to take advantage of market returns over the long term. If you set up an investment for your child when she is born, you effectively provide yourself with the benefit of at least 18 years over which to save for her tertiary education. A well-diversified unit trust portfolio is an excellent vehicle for long-term investing as it provides full investor flexibility and the ability to tailor-make your portfolio according to your needs. You may also want to consider setting up a tax-free savings account (TFSA) to take advantage of the tax benefits provided by this vehicle. All proceeds earned from a TFSA, including interest income, capital gains and dividends, are exempt from tax which means that you get your full investment return without being taxed on the growth.

Childcare

If you intend going to back to work after your maternity leave, you will need to build the costs of childcare into your budget. Most parents have a choice between enrolling their child in a daycare or employing a full-time nanny to care for their child at home. Depending on your location, day care costs range between R1 500 and R5 000 per month. While a 2019 report by SweepSouth found that the average national domestic worker wage was R2 700 per month, it is more realistic to expect to pay around R4 000 per month for good child minder. You may want to factor in additional training costs to ensure that your child’s carer has the necessary skills such as first aid, swim training and baby care.

Your Will

Once your child is born, you will need to update your Will to make provision for her. In doing so, give thought to who you would appoint as guardian to your child if you and your partner are no longer around. Consider also setting up a testamentary trust in your Will as a vehicle for housing any assets you wish to leave to your child. When drafting your Will, you will need to appoint trustees to the trust, so give thought as to who would be best suited for the role. Be sure to have conversations with those who you intend nominating as guardians or trustees so that they are aware of your intentions. Ask your financial planner to prepare an updated Will for you so that you can sign it as soon as your baby arrives.

Have a wonderful day.

Sue

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