Having a baby is a momentous occasion that should be celebrated and cherished. However, the daunting reality of making drastic changes to your financial arrangements may soon begin to set in. However, it’s important that you and your significant other stay calm and carry out actionable steps backed by a solid plan. If you can manage that, then things will go smoothly. Being financially prepared for a baby doesn’t have to seem like an impossible endeavour.
First and foremost, don’t try to handle all the responsibilities associated with welcoming a new family member at once. Sort your financial to-do list by priority and start with the most essential items. Start there because medical expenses and insurance claims will be some of the first financial obligations you’ll have to deal with while pregnant.
The next stage is to create a budget for your pregnancy and the first few months your baby will be born. Since your child won’t be leaving the house for at least another 18 years, it would appear that time is on your side. The time has arrived to begin taking the actions necessary to safeguard the financial future of your family.
Being a parent and having your first kid is one of the greatest joys in life that money cannot buy. But failing to plan financially for the arrival of your child would be a mistake.
Parents are often so thrilled to see their new baby that they forget about the financial aspect of raising a child. Along with tiny apparel and cute ultrasound pictures, preparing for a baby requires extensive financial planning.
Here’s a handy list of your most important financial responsibilities with a breakdown of 19 steps to take if you want to be financially prepared for a baby
1. Update and review your financial plan
Take a close look at your finances and your financial plans. Create a new household budget. Prioritize your spending and consider the extra expenses related to having a baby, such as doctor visits (for both the mother and child) and the infant’s daily necessities.
You should update your financial plan to accommodate your child’s longer-term needs, such as secondary education (and beyond).
Consult with professionals, acquaintances, and family members to get a rough idea of how much it would cost to meet your child’s needs. Don’t let the information alarm you; instead, think of it as a means to help you get ready for the future.
2. Review health insurance options
Your financial plan should include an estimate of the costs associated with pregnancy and delivery. Before the baby is born, it is a good idea to evaluate your health insurance coverage. This can help safeguard against any unforeseen charges related to the birth and infant care support needed in a hospital.
Take note of childbirth costs and upfront expenses that may include an unplanned Caesarean delivery or emergency anaesthetics and post-natal phototherapy. Typically, health insurance policies require that your child be covered within 30 days of delivery, and your insurance company should provide coverage that is in place as of your child’s birthdate. We recommend researching this before your child is born while you still have some time.
3. Get a comprehensive life insurance policy
Life insurance, as the name suggests, can be a lifesaver.
It is one of the best things you can do to provide yourself and your partner with peace of mind while being financially prepared for a baby. Life insurance helps ensure your family’s financial stability in the event of your death.
If you already have life insurance, it is a good idea to consider expanding your coverage to include your new child. Once your child is born, consider adding him/her as a beneficiary to your existing life insurance plan.
4. Build a basic baby budget
In general, if you are expecting your first child, you’ll likely spend a lot of money on one-time items like swings, cribs, car seats, toys, etc… We recommend making adjustments to your monthly budget to account for these first-time baby purchases.
As first-time parents, you may want brand-new items for your kid. You can maximise on special sales on Lazada or Shopee. If you’re on a budget, Facebook Marketplace is a great place for second-hand deals.
If you’re a first-time parent, you may wish to hire additional support such as an in-house confinement lady or staying at a confinement centre to help with your baby. Don’t worry, there are lots of packages available to suit your needs ranging from 14, 21 and 28 days. Prices usually start from RM2,000 and above.
Aside from the monthly baby expenses, all of these first-time purchases could potentially rise by another RM8,000 to RM10,000 as a result.
5. Revamp your monthly budget
You might have already expected having a kid would increase your financial obligations, but by how much more? Include the expense of child care, medical care, and insurance for the baby in your budget.
Spending a lot of money on diapers, baby food, and prescriptions, as well as frequent trips to the paediatrician, are all expenses that come with becoming a parent. It’s crucial now more than ever to review your monthly spending plan and increase it by at least 10% for the first year to account for these expenses.
6. Plan for childcare
Now comes the question of who’s taking care of the child while the parents are at work. After all, there has to be consistent cash inflow to accommodate the (just as consistent) cash outflow that comes with having a child. If one parent is employed full-time, then there shouldn’t need to be as much focus and planning in this area. If both parents are working full-time, however, then it’s time to factor in expenses for childcare, be it a nanny, nursery or crèche.
Planning your finances around childcare may not be as straightforward as your other plans. There will be many adjustments, trials and errors along the way. You will have to consider, for example, how long your child will be in childcare daily and how many days weekly and monthly, how long it will take for your child to adjust to their new surroundings (and whether your child even likes the childcare provided) and what level of expertise from the childcare provider that your child would require.
It’s important to speak to your child’s early childhood educators about the best strategies for supporting your child during the transition. Due to their extensive expertise in integrating young children into daycare, educators can offer solutions for your kid and your family.
7. Affordable health care for infants
Having a new baby can be both exhilarating and financially challenging. For new parents, this tiny new addition can lead to major changes and costs. In this stage of your life, when you’re bringing a newborn into this world, planning is a very serious step, and of course, healthcare must not be overlooked.
First of all, included in your baby budget plan should be all the things that will go into the baby’s first-aid kit. That will be, for example, baby nasal and ear aspirators, infant ibuprofen, and a baby rectal thermometer. Included, as well, are things to help protect your child from sicknesses and diseases, i.e., warm clothing, antibacterial hand wash and sanitisers.
When possible, breastfeeding should be the infant’s main source of nutrition up until the age of 6 months, according to the World Health Organization. By providing your newborn with the mother’s antibodies and a higher degree of immunity, breast milk can boost your baby’s health. Breast milk, though, may not be an option for many mothers for various reasons. In such a case, you’re going to need to factor in the cost of baby milk formulas.
Find out the cost of vaccinations and doctor checkups. Determine the best clinic and hospital for you to bring your baby to. Do all the research you can. Set up a lot of precautions. Prevention is better than cure. It’s very much optimal, however, to have a hefty emergency fund.
8. Evaluate or increase emergency funds
If you have a detailed financial plan, you may already have six to nine months’ worth of your average monthly spending in savings. This is great, but with your new baby comes higher monthly costs in new places.
Consider enhancing your emergency savings for the upcoming six to nine months. To be wise, you should start saving for these expenses several months in advance, if not years. The earlier you start saving and building your emergency fund, the better. For couples who hadn’t planned to bear a child, then it’s probably going to be a huge shock for you, and you might have to go into a financial crunch. It’s time to really look into your current expenses and once you’ve categorised your expenses, it’s easier to trim out what is unnecessary for the sake of gaining a little more financial freedom.
9. Manage and pay off debts
Avoid disregarding your bills or paying only the minimum amount due each month.
Optimally, you should be debt-free before having a baby, but not many people are able to accomplish that. In that case, pay at least the minimum due on time each billing cycle, to prevent damaging your credit. It might be quite a tight situation, paying off debts and planning for a baby at the same time. How should one go about doing the maths?
A rule of thumb is to calculate your baby budget, add in the amount you’ll need to cover maternity and paternity leave, and then divide that by the number of months left before the baby is expected to be born. Next, determine how much is left each month to pay debt off more quickly.
If you take the time to handle your debt now, you’ll save money in the long run, though you shouldn’t compromise your family’s basic needs for the sake of paying debts. Also avoid draining your savings to pay off debts, as being ready to cover emergencies is of greater importance.
10. Set up education funds
The earlier you start saving for your child’s education, the longer your money will have to profit from long-term market gains. It is never too late to start. You should contemplate whether to send your child to an international school or a public school. Depending on the type of institution you send them to, in Malaysia, it can cost around MYR 300,000 from preschool until Year 12, with an international school costing up to MYR 450,000, covering all required education levels. If you start an investment for your child when he/she is born, you give yourself the advantage of at least 18 years to save for post-secondary education.
A well-diversified unit trust portfolio might be an excellent vehicle for long-term investment since it provides total investor freedom and the ability to tailor your portfolio to your needs.
There are a few typical expenses to consider while making a savings plan for your child. One rule indicates that if you’re thinking about sending him/her to university, you should save at least half of the tuition costs.
The college or institution you want your child to attend has an impact on this. Saving RM2,000 a year for each year before college is a great place to start, but each person’s situation is different.
11. Save for future expenses
Understanding your options for saving and investing for your child’s future is one of the first steps in getting started. To secure your child’s future, you can open a variety of savings and investment accounts that offer stable returns for mid-long term holds.
A few things you should include in your future expenses plan are, for example, family holidays, extracurricular activities such as music/sports lessons and school trips. The bigger and more inclusive your plan is, the more you are prepared to provide your child with a healthy upbringing and good life.
12. Prepare a will
Once you have children, you should consider making a will to ensure that they will be taken care of if you, your spouse, or both of you pass away.
In light of this, you might need to review the beneficiaries on any insurance policies you have. You may need to modify any prior nominations you made if you want to add your child. You might also want to consider stating how your property, investments, and/or money should be transmitted in your will.
13. Keep an eye out for tax breaks
There are various tax breaks available for parents of dependent children. The deduction lowers the employee’s chargeable income. For tax purposes, the term ” child” is defined as an “unmarried dependent legitimate child, stepchild, or adopted child.”
Please be advised that no deduction may be made if a child earns his/her own income and his/her total income (without scholarships and grants) is greater than the deduction that would otherwise be allowed. In Malaysia, you can consider using tax relief and National Higher Education Fund (PTPTN) benefits by establishing an education fund for your child and starting with programs like SSPN-i.
14. Make maternity and paternity leave plans
Discussing with your partner whether or when you will both take time off from work is a smart idea. Contact your employers to find out more about your benefits. Is your time off compensated? What time is it? Does it have to be taken at a certain time of day?
Even though every business has its own set of rules, they are all bound by some overarching regulations. It might be simpler for you to alter your budget and decide whether you’ll need additional daycare during the first few weeks after giving birth if you are aware of your options.
15. Utilise workplace benefits
Even while bringing a young child to work is hardly a novel idea, official initiatives in private and governmental organizations are on track to give millennial and Generation Z workers the flexibility in childcare they want.
Some programs allow parents to bring children beyond 6 weeks old into the workplace since the workplace has been designed to provide a safe and healthy environment for the new resident.
The arrangement usually ends when your child is mobile or is 6 months old, whichever comes first, as long as the parents and the youngsters follow a set of co-worker and productivity-friendly conventions.
16. Check your credit
As part of the financial due diligence that comes with a new baby, consider checking your credit score to identify any inconsistencies or substantial amounts that can come back to haunt you later on.
Take this time to clean the credit slate if required. There are four main sources in Malaysia that offer credit reports and scores. The main one is CCRIS, which is run by Bank Negara’s Credit Bureau. The Credit Reporting Agencies Act of 2010 also grants licenses to other private businesses that offer credit reports. These organizations have access to CCRIS, but they also include more details in their credit reports.
You can obtain a credit score for a reasonable cost even if credit reporting bureaus are not permitted to provide you with one for free.
17. Reconsider your income
The prospect of a growing family can come with anxiety, particularly with regard to money.
In this case, it’s a good idea to take this time and reconsider the income streams that you currently have. Are you just getting by, or is there enough of a ‘cushion’ in the form of expendable monthly income that leads to you being financially prepared for a baby?
Aside from saving and managing money, think of ways to make more by assessing the options you have (depending on your unique situation) to either add on more professional responsibilities by starting a side hustle, aiming for a promotion or delving into investment opportunities. Discuss the situation with your significant other and work something out in the meantime that might help boost the household income gradually.
18. Spend time working on your finances
Making time allocations for your priorities in advance is part of creating a time budget. Similar to a money budget, you budget time instead and decide how much time is best to spend on each of your important life areas. You stick to that budget for the duration of that time. Similar to a conventional financial budget, there are many benefits.
Following a budget enables you to allocate time for the tasks that are most significant to you and prevents you from squandering it on pointless pursuits. There is little doubt that you will discover a lot about how you use your time.
Your time budget, however simple it may seem, acts as a straightforward and practical road map for deciding how you should manage your time at any given moment. This gives you comfort and clears your mind, so you can focus on whatever work you set aside time for.
19. Adjust lifestyle & spending habits
Despite the fact that some lifestyle inflation can be unavoidable, remember that every decision you make today regarding your spending will have an effect on your financial situation tomorrow. Increasing your spending now can also make it more challenging to break the habit later.
It is still possible—and actually rather simple—to go back to your prior way of life of living paycheck to paycheck, even if your earnings have increased dramatically. Lifestyle inflation can cause you to quickly develop the propensity to spend more than you make. You purchase more than you truly need in order to maintain your new (inflated) standard of living.
Even if certain purchases are necessary, it is always beneficial to differentiate between needs and wants. By keeping needs and wants in mind and making realistic, sincere assessments of whether a potential purchase is a need or a desire, you may make better financial decisions and avoid undue lifestyle inflation.
Another way to reduce excessive spending when your income grows is to invest or save a sizable amount of it. If your monthly income has increased by RM1,000, for instance, you should consider striving to save or invest an additional RM750 by raising your savings or EPF contribution or adding to your emergency fund. If you save the extra cash, you won’t be able to spend it on frivolous things.
Conclusion
Expecting a baby can be exciting, wonderful, and stressful all at the same time. It may seem like an overwhelming task, but financial management is a crucial part of success and stability for the future of your family. If you want to be financially prepared for a baby, be diligent and proactive when it comes to completing as many of the items on this list as possible.