GUIDES: Start saving early to help your children
If you already have a plan, you’ll have to adapt it, because a baby will change your life dramatically. Suddenly, you’ll have to deal with things you’ve never encountered before.
Think short term and long term. In the short term, there’ll be financial consequences such as extra doctor’s expenses, a room for the baby, a pram and flying up your parents. Everything costs money - and often more than you think.
In the long term, you must think about your child’s education. Start saving for it now. All of this will mean that your budget must change too. Remember to update your policies now that your circumstances have changed - include the new beneficiary.
Do research and make sure that you know exactly what your medical scheme covers when you fall pregnant. Ask questions and make the most of the pregnancy benefits on your medical scheme. You often have to pay expenses from your savings plan.
It’s not nice to think of the worst, particularly while you’re celebrating a new life, but you have to.
What happens if you - or both parents - die prematurely? Will your children be looked after? Will there be enough money? Talk to your financial adviser about solutions that can provide for your family when you’re no longer around.
Teach your child about money from a young age. Ask family and friends who want to buy your child gifts to rather give money that you can invest for his or her future. Use it as a learning opportunity. Teach your children the value of money, about compound interest, and about delayed gratification from a young age.
Start saving early for your child’s future. Research shows that it costs R90000 a year on average to raise a child. It’s expensive. But the irony is, the less money you have, the earlier you have to start saving to be able to maintain your standard of living later. But with time on your side, even a small amount, such as R300 a month, can make a major difference by the time your child is ready for university. This is the wonder of compound growth over a long time. If you invest R300 every month for 18 years, you’ll have almost R200000 by the time your child goes to university.
On average, education costs increase 4percent faster than inflation. This means if your child is going to Grade R in 2019, it can cost R1.3million for 12 years in a state school, or R3m in a private school. To be able to save enough for a private school within 18 years, you’ll have to save R2500 a month from the day your child is born, and increase the amount by 10% every year. Rather start early so that you have the advantage of compound interest on your side.
Jeanette Marais is the deputy chief executive at MMI Holdings.