Having a second child? Five financial considerations
As soon as children enter the picture of your life, it’s time to start planning your future with them in mind. While you may not need to buy a new pushchair or cot for a second baby, a growing family can trigger bigger changes to family life.
Consider these five points.
Life insurance, Critical Illness and Family Income Benefit:
Many people forget to review their insurance policies when the family grows. In many cases, having more children means that you may need a higher sum to be paid if you need to make a claim. It is important to review the policies you have in place. This is particularly important for families with one main earner because of the reliance on one person’s health and earning potential. Protecting the family against that should be considered a priority.
Will you need a bigger home for your expanding family or do you need to extend your existing home? If this is baby number two, then you may already begun thinking about school places and catchment areas and pregnancy could trigger this move. Moving house can mean an increased mortgage and associated costs such as stamp duty, estate agent commission and legal fees so you need to prepare for these.
Parental leave and childcare:
Many couples save hard before their first child arrives, but this is often not possible when a second child comes along. You need to prepare for a drop of income if one parent does not work or get ready for double childcare costs if staying at home is not an option.
Many parents want their children to be privately educated or to go to University. Even having to pay for two sets of uniforms, sports equipment and school trips require considerable money. This typically means that you need to start investing as soon as the baby is born. If you have begun an investment plan for a first child, then matching that plan for your second could be important.
The stay at home parent:
The stay at home parent needs to consider their own finances. How will money be managed in the family? Will they get their own income and who will contribute into their pension during the career break? When one person works at home to care for the family, the working partner should not be the only person who benefits at retirement with a pension.
As a family grows it is important for both parents to keep talking about money. Discuss your financial approach to money and children, how you will each contribute. Decide who will pay for what, how you will handle large money decisions.
Don’t forget the medium term and long term savings goals either, such as a new car or private education. If these are goals you want to reach then you need to start investing as early as possible. Children grow quickly and the key milestones in their life roll around just a fast.
Paul Harsum is a wealth planner at Sanlam.