For most people, becoming a parent entails significant financial changes. However, the thrill and joy that a newborn provides can frequently overpower the desire to adapt to your new reality right away. With so much going on, you may lose control of your finances and even waste money if you are not careful.
With a whole new human to feed, clothe and take care of, how you have been spending money will need to change. And without enough preparation, you will have to freestyle it, which can put you at risk of overspending. Ideally, you should have a ready plan to ease into immediately after your child is born.
So, what should you do to ensure you stay ahead of any financial surprises? This article will explore seven financial changes that new parents should make and how they can help their overall finances.
The expenses you have as an individual or a couple greatly vary from those you'd have as a parent. Your expenditure changes extraordinarily with the coming of a child. Baby clothing, food, medication, utilities, and childcare fees become the new expenses you must add to your budget.
To cater to these new expenses, you should revamp your budget and change how you spend your income. While you may not need to make drastic changes that will completely alter your current lifestyle, you may need to cut or reduce some of your spending to cover the newborn's expenses.
As a parent, you must focus on investing and saving for yourself and your children. The quality of life you want for yourself and your household entirely depends on how financially stable you are. And that starts with ensuring that you track your spending and create a budget that helps accomplish personal financial goals like retirement planning and new ones like educating your child.
Additionally, if you have some debt obligations, factor them into your budget and start paying them off, starting with high-interest loans. Keeping your debt-to-income ratio low as a parent will make saving for future goals less challenging.
You probably have rainy day funds stashed away, but with a new child in your care, you should revisit it and examine if it will be enough to sustain you and your family when misfortunes such as loss of income strike.
A newborn child will incur numerous unanticipated expenses, particularly during the first few months while you are learning how to parent. You may also find yourself in a situation where you have to spend more money than you planned. You don't want to go into debt or deplete your savings in either of these scenarios since your emergency fund will come in helpful.
Your rainy day fund should be able to cover six to twelve months of expenses and be kept in liquid and easily accessible investments or savings accounts.
Once your child is born, making trips to the clinic will become a norm. Attending immunisation appointments, and undergoing numerous tests to assure their health are just a few examples.
Most of these checkups and appointments will cost you money, especially if you go to a private hospital. After some time, these costs will add up, and before you know it, you are blowing your budget on your child's hospital visits. Including them in your health insurance as soon as they're born can save you from spending a lot out of pocket.
Granted, your monthly premiums might increase for adding dependents, but the extra amount you pay will likely still be lower than how much you'd be spending if you choose to pay with cash or buy your child their own medical insurance. Some providers and insurers will require that you submit a birth certificate for your newborn to be covered; if that's the case for you, you might want to start the process faster.
Your maternity or paternity leave will be over in a few months, and you will have to return to work. How will your child be cared for while you are away? Finding someone who will look after your baby while you are away working will be tricky. Start exploring your options early to avoid a last-minute rush and afford yourself peace of mind knowing your offspring will be in good hands.
Childcare (or daycare) is going to be an expensive expense, so before you start interviewing different providers, you should set a budget of how much you can spend on this monthly. Next, you should look at other options and see if they're available to you or can help you save money. Such options include:
The option you take should ensure your child's safety and makes the most financial sense to you. If you choose to work part-time or from home, look at how that could affect both your income and career in the long term.
Being a parent requires preparing for all kinds of emergencies that can arise from any angle. You don't want to put yourself in a position where, when an unexpected event like the loss of income or your untimely demise happens, your dependents are left out in the cold. Getting insured is crucial in setting up a roadmap that ensures your dependents are well taken care of at all times.
Some important insurance covers every parent should consider buying include:
Income Protection Insurance: This cover ensures part or whole of your income is protected in case of events such as retrenchment or developing a terminal illness that prevents you from generating income. It will also cover you if you lose your job due to events outside your control.
Disability Insurance: This policy also protects your income when you sustain an injury that leaves you temporarily or permanently disabled. Your insurer will pay you monthly stipends to replace your lost income. This cover is vital for parents who work in environments that expose them to danger, but anyone can buy it.
Education Insurance: You'll need to save and invest in your child's education, and starting early gives you a headstart. One way to do that is to buy your kid an education insurance policy that will mature by the time they start school.
Life Insurance: Protecting your dependents is your top priority as a parent. One way of protecting them is ensuring they're financially set when you will no longer be around to provide for them. With a life insurance policy, your insurer will pay your family a lump sum of money upon your demise. Money that can go towards taking care of your child in your absence.
Read Also: How to Protect Yourself From Loss of Income
Now that you are a parent, estate planning has become even more critical as you might be looking to leave most or all your estate to your offspring. If you already have a will, it might be time to update it; if you don't, it is time to write one.
Planning your estate and keeping an updated will ensure:
Providing for your child's current and future needs will require that you explore ways to increase your income and better your financial health. You can achieve this by investing your money in income-generating investments or starting a business like a consultancy firm or freelancing. You should also consider gaining new skills and increasing your education level. This will help you command a higher salary or find better-paying jobs.
The reasons for investing and increasing your income as a parent are straightforward.
Finally, as you invest in your child's future and prioritise their financial well-being, don't shelve or forget about your personal goals like retirement. Find a balance and ensure you also stay on track to save and invest for your golden years.
As new parents, the happiness and excitement are not supposed to blind you from seeing the hurdles of raising a child. Immediately after this child is born, you need to consider your finances will likely take a new direction. With that in mind, you can easily manoeuvre through the corridors of parenthood and align your finances in the best way that guarantees your family's survival.
Start with the simple things like creating a new household budget and increasing your emergency funds savings to the more complex ones like updating your estate and including your child in your financial and investment planning. You will not only be able to avoid money wastage and panic, but you'll be ensuring you stay en route to achieve financial stability.