By Jaclyn Lim
Most new mums and dads welcome the birth of a baby by doing up the nursery. But great parenting is not just about buying that new crib. There’re financial expenses and responsibilities that you have to learn to manage as well.
Ms Anne Tay, Senior Manager of Financial Services from Anne Tay & Associates, Prestige Raffles Branch representing Manulife (Singapore), explains: “With a new addition to the family, your family responsibilities have changed. Now is the time to make sure that there is sufficient financial protection for your child until he or she becomes independent.”
As new parents or parents-to-be, this would be the best time to take stock of financial responsibilities and chart a roadmap to reach your financial goals. So take a moment and consider these five money-wise must-dos.
#1: Set up a budget for baby’s expenses
Shopping for your new-born is oh-so-fun. From monster strollers to car safety seats, there are literally hundreds of baby products just competing for your attention – and dollars. So if you haven’t already done so, it’s time to work out a budget for all things baby-related, to ensure that you spend within your means. Besides start-up costs like hospital delivery, it’s important to factor day-to-day expenses on milk formula, doctor visits, and nappies into your budget. Having a budget in mind will guard against overspending on unnecessary items.
It is not necessary to go through the trouble of opening a separate bank account to cater to these expenses though. “Not unless you want to track in detail how much you are spending on your child,” explains Anne. “If so, this means of tracking may be useful for those who tend to overspend. It may also serve as a neat way of accountability for parents who prefer to split all expenses equally or according to a pre-determined ratio.”
#2: Shop for sufficient coverage
There are endless insurance plans out there, but it is not possible for you and your child to be fully protected unless you have deep pockets. Anne explains: “The important thing about insurance is that it is all about managing risks. Should something unforseen happen to you, your loved ones will be thankful that you have secured their future financially. So in a way, buying insurance is buying a peace of mind.”
So, first review your own insurance needs, before providing sufficient coverage for the child.
Anne recommends the following insurance coverage:
Life coverage for parents: Review your death coverage because of the added responsibility of providing for the child. For example, if your family needs $2,000 of your income each month to provide for them for at least 21 years, then you will need at least $504,000 (i.e. $2,000 x 12 months 21 years) of life insurance coverage.
Total and Permanent Disability (TPD) for parents: If you become permanently disabled, it will mean that besides being unable to bring in the bacon, your family needs to fork out money to look after you. This can be a huge burden to your loved ones. When purchasing a life insurance policy, ensure that TPD coverage is included. If possible, also look out for partial and temporary disability coverage. They can be easily added as riders to your insurance plan.
Hospital and Surgical protection (H&S) for parents: H&S plans pay your medical bills when you are hospitalised. Look out for as-charged plans with no or low co-insurance or deductibility. Such plans are very stringent in providing you the necessary coverage without exclusion or loading, so buy when you are young and healthy.
Critical Illness (CI) for parents: Critical illness coverage simply means protection against the 30 common critical illnesses such as stroke, major cancers, heart attack, multiple sclerosis and major burns. The lump sum payment from the diagnosis will come in useful to continue supporting you and your family – even after you are discharged from hospital.
Medical coverage for your baby: Children tend to fall sick easily, and premiums for CI and H&S plans are fairly affordable for young children. The implication of not buying such plans early is that in the event your child is diagnosed with an illness, he may be declined coverage for that particular medical condition in future.
#3: Save for your child’s university education
One of the key concerns of most Singaporean parents is their children’s education. A good education is the best gift you can possibly give to your child to secure their future. To do so, you have to start planning as early as possible – and not leave it till your child is at pre-university level. Anne recommends buying an endowment plan to save for your child’s education. She explains: “This is a lower-risk product with both protection and savings elements. It ensures you save consistently and provides you with a sum of money upon policy maturity.”
It is best to commit to an endowment plan early. Anne explains: “If you have the endowment plan in place when the child is one year old, you have 18 years to save towards his or her university education. But if you buy the plan only when your child is nine years old, you only have nine years left to meet that goal. It could pose a strain on your family budget.”
#4: Don’t forget your own retirement plans
While putting your child first might be important to you, remember to plan for your retirement as well. Anne explains: “Recent surveys have shown that Singaporeans are marrying and having children later. As such, having a child may compromise their financial goals for their own retirement.”
It is important to continue to work towards your retirement goals. Save in a disciplined manner, regardless of how small the monthly amount may be. Anne suggests: “If you are paying personal income taxes, try to make voluntary contributions to your CPF account via the Supplementary Retirement Scheme (SRS). This is a tax deferral scheme that encourages you to save in a disciplined manner while enjoy tax savings each year.”
#5: Draft a will
Wills are not just for the rich. Once you become a parent, it is necessary to do up a will to designate a legal guardian for your child should both parents die prematurely. If not, the court will decide on your behalf. Beyond that, you can also designate a trusted person to handle your finances after your death. This will help ensure that your child is provided for – no matter what happens.
Maybe Baby would like to thank Ms Anne Tay, Senior Manager of Financial Services from Anne Tay & Associates, Prestige Raffles Branch representing Manulife (Singapore), for her professional input.