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Financial planning for soon-to-be parents

My husband and I are planning to start a family in the next year. We have some credit card debt, are paying off a car and are renting for the next year or two. Collectively we earn just under R40 000 after tax. I am on a medical aid plan with a full hospital plan and savings without gap cover yet. I would get two months paid maternity leave. What expenses, baby costs, investments etc should we take into consideration beforehand?

Siba Njoba - Masthead Financial Planning

Starting a family is a very exciting experience and well done for taking the first step to planning for your family’s financial future.

You have mentioned that you have medical aid. I would strongly advise that you review the medical aid plan that you have, to make sure that you have comprehensive cover for all the required gynaecologist visits and that your hospital is in close proximity to your home.

Is gap cover essential?

Indeed, gap cover is essential, as it covers the shortfall that often occurs for when you have a medical procedure. The shortfall arises from the difference in what the medical scheme pays and the actual cost of the medical procedure.

I would also recommend that you consider sickness cover – should you experience any complications in your pregnancy. Sickness cover is a benefit that pays out the equivalent of your monthly income in the event of illness, injury or sick leave and can be a solution for when you are unable to work in the short term. The sickness benefit also provides cover during a period of special leave (sabbatical, unpaid maternity leave, etc.) of up to a period specified by the provider of the cover. See Sanlam’s sickness benefit (IS3) here as an example.

In preparation for your pregnancy, I would encourage you to start saving for all of your child’s immediate expenses: from the monthly spend on items such as formula, diapers and a baby’s caretaker, to their education.

Investment vehicles that you could consider are a tax-free savings account or a unit trust portfolio, where you are able to have access to the saved funds – as and when you need them. Also, consider short-term to long-term strategies to best meet your family’s financial needs. For example, in saving for the child’s immediate needs – you could invest the money in a portfolio that is suitable for the short- to medium term, while saving for the child’s education can be put in a portfolio that is geared towards a long-term strategy investing in growth assets and equities, considering the investment time horizon and risk profile.

You have indicated that you will have two months’ paid maternity leave. Once the baby is born, you may want to have an extra month at home – so make provision for any extra unforeseen expenses. Furthermore, contact your employer human resources department and ask them about the process of claiming from your UIF (Unemployment Insurance Fund), as well as the expected payment from the fund.

Debt management

It is also important to have a debt reduction plan in place to try to alleviate your debt burden.

Teamwork is key… work together with your husband and find creative ways to see where you can cut down on in the family budget, so that you can have more money to allocate to your savings. I would recommend that you cut back on some luxury lifestyle items and also review your current life policies to ensure that you are adequately insured.

Other debt reduction strategies you could consider is paying more for your car repayments – this will shorten the debt-repayment period and save you on the interest. The same can be applied to your credit card debt as well. You could also start paying off the debt with the lowest debt amount first, tackling your debt one at a time.

Wishing you well in your journey to financial freedom.

Do you have any questions you would like answered by registered financial planners?

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