“I’m pregnant!” – How many times will you be able to utter those joyous words in a lifetime? Perhaps only a handful of times, if you are lucky. One thing is for sure though, your finances are never going to be the same again. Welcome to a 21-year financial commitment (that’s a minimum BTW) and if you didn’t get the memo, you’ve officially been appointed Chief Financial Officer of your family affairs.
Your duty, as the newly appointed family CFO, is to have the answers to these 10 questions already figured out. The good news is that we are sneakily going to give you the inside track:
- Should I take out a personal loan to cover the new baby costs?
Not if you can help it! Taking out a R50 000 personal loan is likely to end up costing you R90 000 by the time you have repaid it over 5-years. Let’s think about this logically. If you’ve been planning to have a child, then you’ve probably been putting a few bucks away to cover some of the new costs associated with having a baby. If this has all come as a surprise, and you simply don’t have the money for the basics, then consider other lines of credit like a credit card. At least you have 55 days interest-free on your purchases. We recently did an article on credit cards you might want to check out. What about leaning on your family? If push comes to shove, ask your family for a hand. Worst case scenario they can’t help. Best case scenario you negotiate a repayment plan with zero interest.
2. How much does it cost to have a baby?
A lot. The only way you are going to be able to write these costs off is to be a member of a Medical Scheme. If your plan has a medical savings element, then Gynae visits and scans are likely to be paid from that portion of your plan, and the delivery cost will be paid from your in-hospital benefit.
The important thing to understand is that you can’t join a Medical Scheme once you find out you are pregnant. It’s too late then.
3. How early should I start saving for education costs?
As soon as possible. Education inflation in South Africa is running at 9%, which is double the current consumer inflation figures (CPI) of 4.5%. That means more and more South Africans aren’t going to be able to keep up with costs associated with sending their children to school. A three-year degree in 20-years from now could cost R1000 000.
The easiest way to break this down is into three bite-size projects, so it doesn’t become too daunting:
- Saving enough for pre-school and daycare
- Saving enough for the long haul, which is schooling
- Saving enough for varsity fees down the line
4. Do I need a Will?
Absolutely. You need to start asking yourself some tough questions:
- Who is going to be your child’s Legal Guardian?
- How much money will the Legal Guardian need to look after your child?
Consider setting up a Testamentary Trust in your Will. That means your assets will be left to your child in a trust that is managed by a 3rd party and your child will receive the monies when he or she turns 21.
5. Do I need life cover?
Yes. It’s not about you anymore, you need to be thinking about planning for the best and expecting the worst. A lump sum of life cover is critical to square off any debts you might have (like a home loan or car) if you pass away and provides money that can be invested to generate income that is obviously not going to be coming from you anymore. Here is a nifty calculator you can use to work out exactly how much life cover you need. We’ve also done a helpful post on how to use the calculator and what the thinking was behind building it. Read this blog post.
6. How much money should I have saved for a rainy day?
That’s a great question and one that is often overlooked. The rule of thumb is that you need at least 6 x your monthly salary parked off in a bank account (or an investment that is easily accessible) for any emergencies. Ideally, you want to be looking at a gross figure, but your take home is a minimum. Let’s assume for a second that you take home R15 000 per month. That means you need R90 000 saved for a rainy day.
7. Does my baby need to go onto a medical aid?
If you belong to a medical aid, the day your baby is born, you need to notify your Medical Scheme. Your child will be added to as a child dependant and you will be charged an additional monthly contribution. Any future medical costs associated with your child will come from benefits allocated to his/her plan.
8. At what age can I start saving for my child’s retirement?
The answer is from the time they are one. You might not be aware of this, but you can take out a Retirement Annuity for your child very early on in their life. Imagine the head start they will have towards their own retirement if you kicked things off 365 days into their life? In fact, we can’t think of a more thoughtful gift at 18 or 21 than a policy full of retirement savings. What a gift. If you can afford it, start thinking about your baby’s retirement early on.
9. Do I need any other insurance cover?
Outside of medical aid and taking out life cover, which we have spoken about, you might want to consider insuring all that new stuff you have coughed up for. The snazzy stroller, camp cot and anything else that leaves the house on a regular basis, needs to be covered by your short-term insurance policy. Let’s assume all the baby add-ons have set you back R20 000. What are you going to do if this stuff is sitting in your car while you are at the in-laws for a quick coffee and the car is stolen? Do you have R20 000 lying around to cover this? Probably not.
10. Can I claim from UIF?
You might want to start with this blog post we did last year. Women in South Africa have the right to four months of maternity leave. But there is no legal obligation for your employer to give you the paid maternity leave. If you have been contributing to the Unemployment Fund (UIF), you are eligible for a maternity benefit of a maximum of 60% of your salary, with benefits paid for a maximum of 121 days.
Can we help with anything? Our business is life, disability and critical illness cover.
Until next time.
The Wise About Life Team