It takes a meticulous planner to be fully-financially prepared for all the implications of a positive pregnancy test.
For most, the much-celebrated event will require a revision of – or even the start of - financial plans, one of many life changes the new life will bring.
If your, or your partner’s, pregnancy comes as a shock, you will most likely also be financially unprepared.
Suddenly you are responsible for the welfare of another human being for at least 18 years – probably more. Here’s where to begin:
Before the birth
Review your medical cover
One of the first things to consider is the medical care you will need leading up to the birth, during the birth and in the baby’s critical first years.
If you do not have private medical scheme cover, now would be the time to give some serious thought as to whether you want to risk using state hospitals and clinics.
Some insurance products offer limited maternity benefits that may pay for routine tests, a straightforward birth and health check-ups for the child, but complications before, during or immediately after a birth can lead to some of the highest medical costs you will ever incur.
Even if you are on a medical scheme, check the benefits to which you are entitled and consider the need to upgrade your cover. As a single person, or healthy couple with no kids, you may have been on a low-cost mostly hospital-only plan that has limited maternity benefits.
If the birth is due within the calendar year, check if you are able to upgrade.
Even if you decide to use a public hospital, remember that you can be charged in line with your income.
Check your maternity benefits
If you are employed, find out if your employer offers any maternity benefits. Employers are obliged by law to allow you to take four months maternity leave, but there is no obligation on an employer to pay you during that leave – only to keep your job open for you on your return.
Some employers pay full salaries during that leave, others pay nothing. Some pay part of your salary or pay the salary in full for a shorter period such as three months and expect you to use your paid leave for any additional time you want to take.
Talk to your employer’s human resources department to find out what pay you will be entitled to.
If your employer does not pay maternity benefits, but you have been contributing to the Unemployment Insurance Fund, you will be entitled to claim from the fund during your maternity leave.
Remember, however, that UIF benefits depend on how much you earn and how long you have been contributing for, and how much your employer will pay you while you are on maternity leave.
What you receive from your employer and from the UIF cannot amount to more than 100% of the salary you were earning before you went on maternity leave.
The UIF pays benefits of between 38% and 60% of your income, depending on how much you earn. The higher percentages are paid to lower earners. Anyone earning more than the income threshold that qualifies for UIF – currently R17 712 – will receive only 38% of this amount.
The department uses the last four years during which you have worked to calculate how many days of UIF it will pay.
For every six months you have worked in the last four years, you will receive a month’s benefit.
If your employer won’t pay you during your maternity leave, check how your benefits such as medical scheme membership, group life and disability cover and retirement contributions will be covered while you are on leave.
If your employer will not cover these, you need to know what you will have to pay, and then include these monthly contributions in the plan you make for covering your expenses and surviving on reduced pay while on maternity leave.
If you plan to stop working to look after your child, preserve any retirement savings in an employer sponsored fund. Read more What happens to my savings in an employer-sponsored fund if I leave my employer?
It may be possible, but it isn’t ideal, to stop or reduce contributions to your retirement annuity while you are not working – but check with your RA provider as some RAs have contractual terms and penalties for stopping or reducing contributions.
Try to avoid withdrawing your savings to cover the additional costs of having a baby. Read more: Why is withdrawing from my retirement fund a bad idea?
Check whether your insurance policy has a waiver on premiums or reduced premiums while you are on maternity leave.
If you are self-employed, you won’t have been contributing to the UIF, but if you have an income protection policy, particularly one with temporary income protection, you may be able to claim on it during your maternity leave.
Be careful not to overestimate your ability to continue to run a business after the birth of your baby. Being a new mum can be all consuming, especially for those who have little support or demanding babies.
Check your life and disability cover are adequate
When you are planning for a new life, it is awful to think that you may not see your child to adulthood. It is best, though, to plan for all eventualities and ensure your baby has the best start to life.
If you do not already have life and disability cover in place, now is definitely the time to get it in place to ensure that if you die, your baby is adequately cared for, whether you are the breadwinner or the one who will be caring for the child. Read more: Do I need life cover?
Disability cover will also protect your family’s finances against the cost of you, as a breadwinner or the carer of the child, becoming disabled. Read more: Do I need disability cover? How much lump sum disability do I need? and What is an income protection policy?
If you already have life cover in place, now is the time to review it to be sure it is adequate for your growing family’s needs. Read more: How much life cover do I need?
Make sure you have a will
A valid will is always the safest way to ensure those closest to you inherit and the birth of child should give you reason to check you have a valid, up-to-date will.
If you do not have a will, you will die intestate, which means your estate will be divided in terms of the law: equally among your spouse and children, or, if that means your spouse gets less than R125 000, it all goes to your spouse.
If your child is a minor when you die, they won’t be able to inherit cash and this will have to be paid to the Guardian’s Fund until they turn 18.
Intestate estates also take longer to wind up than estates where there is valid will.
You should consider using a beneficiary fund or setting up a testamentary trust in your will for the benefit of your child or children. Your will should name the trustees, outline the trustees' powers and the rights of the trust's beneficiaries.
In your will you should also nominate a guardian for your child or children - someone who will look after them if both you and your partner die, or if you do not have a partner or spouse.
Review your budget
Baby’s arrival WILL upset your budget. There may be additional costs for care and check-ups during the pregnancy, maternity clothes and items you will need for your baby like a cot and a pram.
If you choose to use the private healthcare sector for the birth, you may also face high out-of-pocket costs unless you have a very comprehensive medical scheme or a good gap cover policy.
If you or your partner stop working to look after the baby, this will have a big impact on your income. If you return to work after the birth, finding a nanny or sending your child to a creche will also have cost implications.
Registering your baby on, your medical scheme will involve an increase in your medical scheme contributions and if you need to take out or increase your life or disability cover, you will need to revise what you spend on premiums.
Nappies, formula and baby clothes are all additional cost items too.
One expense that might diminish is your entertainment expense as the exhausting role of being new parents may well curtail your outings.
Smart About Money’s Budget Planner can help you revise your budget.
After the birth
Register your baby on your medical scheme
After your baby is born, be sure to register the birth and add your baby to your medical scheme cover. This will be an additional cost and will have implications for your budget, but it is much too risky not to add a child to your medical cover.
Some of the highest medical expenses can arise in the first few years of a child’s life.
Update your beneficiary nominations
Update the beneficiary nominations on your retirement fund so that in the event of your death, the trustees know you have a dependant child.
You can also record on your nomination form whether you would like your minor children’s benefit paid to their guardian, a beneficiary fund or a testamentary trust established in terms of your will. Remember to plan for the simultaneous death of yourself and your partner in the event of a car accident or violent crime.
Also update beneficiary nominations on your life policies so that these benefits can be paid to your spouse or your child’s guardian while your estate is wound up. This will also prevent you paying executor’s fees. Read more: Why is it important to name beneficiaries on a life policy? and What happens to my retirement savings if I die before retirement?
Start saving for tertiary education
Start now, even with a small amount for your child’s tertiary education. Starting early, while your child is a baby, will allow your money to work hardest for you, through compounding interest. Read more: How can I save for my children’s education? And Why compounding growth is so important
