Buying a piggy bank for your kid might be cute and all, but we sure hope it’s not the only financial plan you have after welcoming a newborn into your home.
If you just became a first-time parent, know that your financial life is about to change drastically. And no, we’re not talking about the fact that you need to buy cutesy outfits for your new baby.
Fail to pay attention to the following money issues early on and you could find yourself headed for a worse disaster than Junior flunking the PSLE.
1. Review your insurance coverage now that you have a dependant
Insurance tends to be the sort of thing you can do a lot of research about at the start, and then rest easy for a couple of years before it comes time to review your existing policies.
Well, when you welcome a baby into the family, that’s when it’s time to update your existing insurance coverage.
If you didn’t have a life insurance policy before because you didn’t have any dependants, that’s the first thing you should look into when you have a child. You should also look into a Personal Accident plan. Insurance ensures that if you get into an accident or if you fall ill, your family will suffer less when faced with the lack of an important income stream.
In a survey conducted by NTUC Income among 329 married adults between the ages of 24 and 49, 51% indicated that they would not purchase life insurance if they had no dependants.
The reason is probably reflected in another statistic: 48% of the respondents were motivated by the fact that life insurance would help their loved ones maintain their standard of living in time of necessity.
Further, it was revealed that 3 in 5 respondents who are married with children purchased life insurance after their marriage, and 7 in 10 bought life insurance products for their children, especially critical illness, savings and investment plans.
So, ensure your child obtains sufficient medical insurance—he might not exactly be at risk of dying of old age anytime soon, but stuff happens, and you want to ensure you’re not bankrupted should medical issues arise.
2. Open a Child Development Account
Everybody in Singapore has heard of the Baby Bonus, but lots of people don’t know how it actually works. The money doesn’t just fall from the sky the second you give birth. You need to open a Child Development Account (CDA) and deposit money into it.
The government will then match your savings dollar-for-dollar by crediting money into that same account, up to the maximum allowed for each child.
What this means is that you need to complete the paperwork to open a CDA account (you can start doing this 8 weeks before the birth of your child), and then start transferring money into it from your own savings. You can choose to open your CDA at DBS, OCBC or UOB. The banks differ in terms of the interest rates and benefits (such as discounts at certain retailers) they offer, so do your homework instead of signing up blindly for a random account.
In order to maximise the amount that you get from the government, make sure you deposit $6,000 (for first child) so as to get it dollar-matched to $12,000.
3. Set up a regular savings plan for Junior
If you think the money in your CDA is going to provide for all your childrearing costs, you are sorely mistaken, unless you expect your kid to make his own money to buy toys or earn his keep on your family farm.
One of the biggest costs you’ll need to anticipate is the price of higher education. Don’t bank on the fact that your child will be so bright that he or she will just get a scholarship, have the government pay for university and relieve you from the financial burden.
Bear in mind that degrees at the local universities are getting quite expensive and fees increase year on year. Furthermore, there may be a chance that your child might want to go abroad for higher education, which costs more.
Setting up a regular savings and/or investment plan for your kid can be a good idea. Some people choose to do so by purchasing endowment plans that will have them premiums in exchange for insurance cover and a cash payout after a number of years.
If you’re the sort of person who’s always had trouble saving, the above product could be for you.
4. Curb spending by comparing prices and buying second-hand
The number of products that are targeted at children and parents these days is tremendous. Well-meaning parents or soon-to-be parents like yourself want to give the best for your children and as a result, overspend beyond their means.
For daily necessities that are expensive such as formula milk and diapers, it helps to frequently compare to see which brand gives you the most bang for buck. Sometimes, buying items in bulk can also help you to save money.
Caregiving services for your baby are usually the highest expense. No matter what other parents say you must need, you alone must decide how to stretch your dollar and draw up budgets to ensure that you’re spending less than your income.
This might mean passing up a spot in that swanky Montessori infantcare that costs $2,500 a month and signing up for another one that costs $700 a month.
Where possible, get secondhand items. Clothes, strollers, carriers, and even shoes can be bought secondhand, cleaned, and used again. Many seasoned parents are willing to let go of secondhand items that their children have outgrown for free. If you’re the first in your social circle to get a baby, you can also check Carousell.
5. Pick a guardian and write a will
It sounds morbid, but it’s better to be safe than sorry. Get prepared for the time when you may not be there for your child.
Write a will detailing who will be your child’s guardian if you die, and providing for him or her financially.
It’s easy to overlook this when you have a spouse who you will assume will be there to look after your kid even if something were to happen to you, or take it for granted that the laws of intestacy will see to it that your money goes to your child. Don’t!
This is not something you should leave to chance just because you’re lazy.
What financial preparations are you making/have you made for your first child? Tell us in the comments!