How to Financially Prepare for a Baby: Strategies and Insurance Plans for New Parents

If you’re reading this, chances are you are either planning to have a baby or already have one on the way. Congratulations on commencing your parenthood journey!

Welcoming a new member into your family is a joyous and life-changing experience. However, as you prepare to embrace these challenges and joys, it's essential to consider the financial aspect of this significant life event.

In this article, we'll explore strategies to help you prepare for your baby's arrival without compromising your financial stability. From estimating baby-related expenses to insurance and estate planning, we'll cover all the crucial aspects of financial preparedness.

How much money do you need before you have a baby?

This is a common question that arises in the minds of many prospective parents. The answer may vary depending on lifestyle, location, and personal preferences.

However, it's important to note that having a baby doesn't necessarily have to be expensive. You can comfortably welcome your little one into the world with proper financial preparation and planning.

Assess your current financial situation

Before your baby arrives, it's crucial to assess your current financial situation is crucial. Here are some steps to help you get started:

1. Create a budget and track your expenses

Developing a comprehensive budget is the foundation of financial preparation. Take note of all your income sources and expenses, including discretionary spending. This will provide a clear picture of where your money is going and help you identify areas where you can cut back or save more.

2. Evaluate your existing debts and obligations.

Look closely at outstanding debts, such as student loans, credit card balances, or car payments. Prioritise paying off high-interest debts, as they can weigh down your finances. Reducing your debt burden before the baby arrives can alleviate financial stress and provide more flexibility in your budget.

3. Identify potential changes in income.

Consider how your income might change after the baby is born. Some parents may take parental leave or shift to part-time work temporarily, which can impact finances.

So, it's essential to carefully consider if one parent should take time off work, or transition to a part-time role at work. Also, will you have additional expenses related to childcare?

Factoring in these potential changes will allow you to plan for adjustments in your budget and ensure you're financially prepared for the new addition to your family.

Estimate baby-related expenses

Bringing up a child comes with various expenses, and being prepared for them is essential. Here are some expense categories to consider:

1. Prepare for medical costs and insurance coverage

The cost of pregnancy and delivery can vary considerably depending on where you live, what type of delivery you have (normal or caesarean), whether you have any complications or interventions, and what kind of health insurance you have.

You should check with your health insurance provider to determine the following:

• what kind of coverage do you have for pregnancy and delivery,

• what kind of out-of-pocket expenses you can expect to pay,

• if your insurance covers prenatal care, postnatal care, newborn care, and any tests or procedures that may be required.

 

 

You should also consider getting pregnancy insurance to cover medical expenses related to pregnancy and delivery. For example, Prudential's pregnancy insurance PRUMy Child Plus covers pregnancy complications, congenital illnesses, hospitalisation benefits, and more. This plan aims to provide comprehensive care and financial security from prenatal to adult stages, ensuring long-term protection for both mother and child.

2. Budget for the essentials

You will need to buy some items for your baby before or soon after they are born. These include a crib or bassinet, mattress and bedding, stroller or carrier, clothes, car seat, diaper bag, and diapers.

Additionally, consider buying wipes, clothes and accessories, bottles and feeding supplies, baby baths and toiletries in bulk to take advantage of potential store discounts.

These items can cost anywhere from a few hundred to a few thousand dollars, depending on your chosen quality and quantity. So, you can save money by buying second-hand items, borrowing from friends or family, or registering for a baby shower.

You should also research the safety and durability of the items you buy and the sellers' warranty and return policies. Checking the reviews and ratings of other parents who have used the products is also helpful.

3. Anticipate ongoing expenses

Plan for recurring expenses like diapers, formula, baby food, and regular check-ups with the paediatrician in addition to the items mentioned above. These costs can accumulate over time, so it's essential to incorporate them into your budget.

4. Future expenses

While it might seem premature, it's prudent to consider future expenses such as play school, daycare, or extracurricular activities. You can set up a separate savings fund to meet these future needs by planning ahead.

Build an emergency fund

As new parents, having an emergency fund is of paramount importance. An emergency fund serves as a safety net during unexpected situations, such as medical emergencies or job losses. It is especially crucial when you have a baby, as unforeseen conditions like preterm birth or PICU stays required for the treatment of congenital diseases may arise.

Aim to save at least three to six months' living expenses in your emergency fund. This fund should be easily accessible and kept in a separate savings account. Start small if necessary and gradually build it up over time. Look for opportunities to grow your emergency fund by setting up automatic transfers to this account from your paycheck.

Adjusting your financial goals and priorities

The arrival of a baby often leads to a reassessment of financial goals and priorities. Here are some considerations during this process:

1. Short-term vs. long-term financial planning

Evaluate your short and long-term financial goals and make necessary adjustments. While certain goals might take a back seat for a while, pay attention to your long-term financial objectives, like retirement planning or buying a home. Striking the right balance is key.

2. Revisit investment strategies and risk tolerance.

Having a child can affect your risk tolerance, as you may become more conservative to protect your growing family's financial future. Review your investment portfolio and adjust based on your new risk tolerance and long-term financial goals.

3. Consider future expenses

Start thinking about future expenses beyond your baby's immediate needs, such as education costs. While college may seem distant, saving early allow you to benefit from compounding interests and can significantly ease the burden of educational expenses later on.

Insurance and estate planning

Securing appropriate insurance coverage and creating an estate plan are crucial to protecting your family's financial future. Here are some key insurance considerations:

1. Pregnancy insurance

Look into pregnancy insurance to cover unexpected medical complications during pregnancy. Some policies may also provide financial support in the case of premature birth.

2. Health insurance for your family

Ensure your health insurance plan adequately covers your growing family's medical needs. Consider adding dependents and maternity coverage to your policy.

3. Life insurance policies and beneficiaries

Life insurance is an essential component of your family's financial security. Assess your life insurance needs and consider term life or whole life policies depending on your circumstances. Additionally, update your beneficiaries to include your child if something happens to you or your partner.

4. Creating a will and legacy planning

Creating a will is crucial for specifying how you want your assets to be distributed. A will helps you designate who will care for your child in the event of the unthinkable. Legacy planning can also include setting up trusts to secure your child's future financial needs.

5. Education Insurance / Education fund

Child education savings offer parents a proactive way to secure their child's future by accumulating funds for education expenses while providing potential returns and flexibility in investment choices. It provides peace of mind knowing that financial support will be available for their child's educational journey, from early childhood through tertiary education.

PRUSaver Kid by Prudential Malaysia is an investment-linked rider that can be attached to various base plans, such as PRUWith You and PRUWealth Enrich, to support the growth of a child's education fund. It focuses on providing a financial foundation through flexible investment options that aim for potential returns, designed specifically to meet the future educational needs of children. This product encourages early investment, allowing parents to secure their children’s academic future efficiently.

Seek advice from financial professionals

Navigating the complexities of financial planning can be overwhelming, especially for new parents. Consider seeking advice from a qualified financial professional, such as a financial advisor or planner. A financial professional can help you devise a comprehensive financial plan tailored to your unique circumstances, goals, and risk tolerance.

Overall, making informed financial decisions is crucial during this life-changing phase. So, consider checking out Prudential’s wealth insurance plans to get the knowledge and confidence to secure your family's financial future.

FAQ

What is a child education savings plan?

A child education savings plan, such as PRUSaver Kid, offers parents an opportunity to invest in funds aimed at growing their child’s future wealth, providing both security and growth opportunities.

What is the benefit of an education plan?

A child education plan offers financial security for your child’s educational future, covering expenses from early childhood to tertiary education and ensuring that your child's learning journey is well-funded.

How to set up an education fund for a child?

The best way to set up an education fund is to start early with a dedicated savings or investment plan, such as those offered by life insurance policies with education riders, ensuring sufficient funds for your child’s educational needs. Contact Prudential Malaysia to learn more about our child education fund.

What should I know about pregnancy insurance coverage in Malaysia?

Pregnancy insurance coverage in Malaysia provides essential financial protection against pregnancy-related expenses, helping manage the costs of prenatal care, delivery, and any unforeseen complications.

What insurance should I get if I'm pregnant?

Consider plans that offer comprehensive pregnancy coverage, ensuring all aspects of prenatal and postnatal care are covered, including unexpected medical issues. PRUMy Child Plus offers comprehensive prenatal protection, safeguarding both mother and baby until the child reaches the age of 7.

Which medical insurance is best for pregnancy?

Look for insurance plans that provide comprehensive prenatal protection to both pregnant mothers and babies.

Prudential Malaysia provides prenatal and lifelong coverage starting from 13 weeks of pregnancy with PRUMy Child Plus. It protects both mother and child up to the child's age of 100. Benefits include coverage for pregnancy complications, congenital conditions, child developmental disorders, and critical illness and accident protection for the child. The plan also allows for additional riders to enhance coverage, addressing specific needs related to medical, critical illness, and accidental protection.

At what stage of pregnancy should I purchase pregnancy insurance?

It's best to purchase pregnancy insurance early on, ideally before any pregnancy complications arise, as most insurers have a specific cut-off week beyond which they do not accept new applications.

Insurance should typically be secured in the first trimester, generally by the 13th week of pregnancy, to ensure comprehensive coverage that includes prenatal care and potential complications that might occur early in the pregnancy.

Conclusion

Preparing for a baby is an exciting and transformative experience. As such, it's essential to approach it with a solid financial plan. By assessing your current financial situation, estimating baby-related expenses, building an emergency fund, adjusting your financial goals, and securing appropriate insurance coverage, you can financially prepare for your baby's arrival confidently.

Remember that each family's financial journey is unique, so take the time to create a personalised financial plan that aligns with your aspirations and values. Doing so will set a solid foundation for your family's future prosperity and well-being. Congratulations again on this beautiful chapter of your life!