Having children is a life-changing experience. Beyond welcoming a new member into the family, couples inevitably face shifts in their financial habits and priorities.
In this story, we speak with Winston Lim, UOB’s head of deposits and wealth management, about how couples can prepare themselves financially before starting a family. He shares insights on what prospective parents should budget for, how to adjust household spending to accommodate a child and how to do so without compromising their lifestyle needs.
Decide on the number of children you want and create a detailed budget
To Lim, prospective parents should first decide on the number of children they plan to have, if they wish to have more than one and, if possible, determine the age gap between the children.
Parents should also think about creating a detailed budget that tracks their current daily expenses to see if they have enough buffers for pre- and immediate newborn essentials such as gynaecologist fees, hospital delivery costs, diapers, food and clothing.
Otherwise, this would be a good time for them to save before taking the plunge.
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“Childbirth-related expense amounts can vary greatly depending on hospital and ward choices, newborn’s first-month (or even beyond) confinement services etc so parents need to have a clear-eyed view of these expenses and budget accordingly,” he says.
Referring to the Monetary Authority of Singapore’s (MAS) basic financial planning guide, which recommends setting aside at least three to six months’ worth of expenses for emergency needs, Lim says prospective parents should use the expense quantum that includes the child’s essentials as a reference.
To get an accurate amount, would-be parents can go on hospital maternity tours and look up confinement agency costs online to get an idea of the facilities and services offered, as well as their corresponding prices, he suggests.
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One key thing prospective parents should also do, is to review and update their insurance plans to ensure sufficient coverage for death and total permanent disability, and critical illness. Mums-to-be can also consider maternity insurance for greater peace of mind during pregnancy, says Lim.
Know your budget for before, during and after
To Lim, couples should plan for at least three to six months’ worth of expenses before the child arrives, as everything can add up.
This includes costs for essentials such as diapers, milk bottles, a cot, carrier and stroller, and emergencies, as well as unforeseen medical complications. The list should also include medical expenses such as pre-pregnancy check-ups, pre-natal gynaecological checkups, ultrasound and other lab tests, which can go up to thousands of dollars, if prospective parents opt for anomaly scans, says Lim.
The budget should also factor in supplements such as folic acid, iron pills and other vitamins, as well as maternity insurance.
During the arrival of your child, childbirth expenses such as delivery fees and maternity ward stays may also cost a pretty penny, depending on the type of ward and length of your stay.
Post childbirth, parents should also remember to factor in costs such as confinement nannies and confinement food, which are good to haves.
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Beyond that, parents should also think about childcare expenses and consider setting up a joint account for education fees and contribute diligently to it.
Adjust your household budget without sacrificing your lifestyle
While the arrival of a child inevitably increases household expenses, Lim believes that it does not have to mean a drastic downgrade in lifestyle, provided couples are willing to reassess what truly matters to them.
“Most if not all parents will agree that a child is a significant financial and time investment. However, with proper budgeting, new parents should face minimal disruption to their quality of life,” he says.
The key is to separate needs from wants. With a child in the picture, parents without sufficient buffers may have to tighten spending on discretionary items, as a larger share of income goes towards essentials. That does not necessarily mean cutting out pleasures entirely, but rather recalibrating expectations.
For instance, couples who love travelling do not have to give it up altogether. They may, however, have to consider shorter regional trips within Asia instead of long-haul holidays to Europe or the US. Families that dine out frequently may choose to cook more at home, saving restaurant outings for special occasions, Lim suggests.
Lay the foundations for your child’s future
Once their finances have stabilised after childbirth, parents can begin thinking beyond immediate needs to longer-term goals such as healthcare, education and their child’s eventual financial independence.
Insurance, Lim says, should be one of the first pillars. Purchasing hospitalisation insurance early allows parents to lock in lower premiums while providing peace of mind should the unexpected happen. Integrated Shield Plans, which complement MediShield Life, can enhance coverage for hospital wards, pre- and post-hospitalisation costs and total claim limits and can be paid using Medisave up to annual limits.
Some parents may also consider term life insurance for their children, covering them until they become financially independent.
For education, Lim recommends setting up a dedicated education fund if there is spare cash. Contributing a comfortable, regular amount allows parents to build a ready pool of funds for school fees down the road.
For those with a longer runway, investing through a well-diversified portfolio of unit trusts and exchange-traded funds (ETFs) can help grow that pot over time through compounding.
Diversify for the long term
With 10 to 20 years before most education expenses are due, parents can afford to take a longer-term view when investing for their children.
Lim advises building portfolios that are diversified across asset classes such as equities and bonds, and not overly concentrated in any single sector, country or company. This helps ensure resilience against macroeconomic or sector-specific shocks.
Regular reviews and rebalancing with a financial adviser are equally important, to ensure the portfolio continues to meet expectations as market conditions evolve.
Know how much to set aside
Determining how much to allocate to a child’s investment fund should start with parents’ own financial security. Lim suggests that couples first deduct daily essential expenses from their combined take-home pay and set aside at least 10% for retirement and other key goals.
Only after these foundations are in place should parents decide on a comfortable percentage for their children’s investments and one that does not compromise their quality of life.
Another approach is to work backwards from the target amount. If parents have a rough estimate of how much a desired education pathway will cost, they can calculate the time horizon, expected returns and monthly contributions needed to reach that goal.
That said, flexibility is vital. “If funds need to be drawn for emergencies, parents should not be dogmatic about it. If they are so inclined, they can always put in a bit more at a later stage to make up for the drawdown,” says Lim.
Make the most of government support
In recent years, the Singapore government has rolled out a range of benefits aimed at easing the financial burden on families. Lim encourages parents to fully tap these schemes and channel any savings towards paying down debt or investing in their family’s future.
These include Baby Bonus cash gifts, the Child Development Account (CDA) First Step Grant and dollar-for-dollar government co-matching, LifeSG credits for younger children, Edusave and post-secondary account top-ups for teenagers, as well as reductions in childcare fee caps at anchor and partner operators. Families with three or more young children can also benefit from the Large Families Scheme, alongside a range of tax reliefs and rebates such as the Working Mother’s Child Relief and Parenthood Tax Rebate.
Don’t forget about yourselves
Finally, Lim stresses that parents should not lose sight of their own financial wellbeing. High-interest debt should be cleared as soon as possible, and retirement savings should start early to maximise the effects of compounding.
“Should parents fall short on the two fronts, they may not be as financially secure as they should be and may need to rely on their children in future, instead of the other way round,” he cautions.
Getting the basics right, he adds, also means putting in place essential documents such as wills, CPF nominations and lasting powers of attorney, ensuring that the family is protected no matter what the future holds.
