8 Steps to Plan Your Finances for Motherhood

23 February 2022

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No matter where you live in the world, the costs of raising a child are significant. But with early planning, you can establish a solid financial foundation for your child while continuing to build wealth for yourself and your partner.

Don’t delay in laying the groundwork as soon as you contemplate motherhood, discover you’re expecting, or plan to adopt a child. Once your finances are in order, you’ll gain better financial control and reduce financial stress.

Here are 8 steps that can help you secure a bright financial future for your little one (without forgetting about yourself!):

1. If you have a partner, have “the money talk” for better financial planning

Your world will radically change with a child, so it’s important to have honest conversations about joint finances with your partner. There are several new expenses to prepare for. And if one of you plans to leave the paid workforce to become a full-time parent, it's important to agree on how to adjust your savings and investment plan under a single income source and how long each of you is comfortable with the new arrangement. Even if the idea of having “the money talk” feels daunting, remember, financial intimacy can ultimately empower both of you to achieve your goals together.

2. Create a budget for the family

A budget gives you a big-picture view of how to spend your money without compromising your savings and investments. You can start by assigning certain percentages of your monthly after-tax income into these 3 buckets:

(A) Needs – such as food, clothing, housing and medical care

As a new mother, you’ll need to accommodate additional expenses for yourself and your baby. These include doctor’s visits, delivery and hospital charges, baby necessities like milk, clothing and diapers, new maternity wear for yourself, and any postnatal costs. As your kid is going to be financially dependent on you for the next 18 years or so, you’ll have to progressively plan for his or her future living expenses too.

(B) Wants – such as luxuries, entertainment and recreation

Everybody wants to be able to spend their hard-earned money on their wants. The occasional splurge can be healthy if it’s properly budgeted into your family’s finances and aligned with your values. For instance, a new car can make it more convenient to ferry everyone around. A bigger TV can enhance the family movie night experience. A 5-star hotel staycation can build happy family memories that last a lifetime. Once you’ve taken care of your family’s needs, don’t feel guilty about indulging within your means.

(C) Savings, investments, and debt repayments 

Besides growing your nest egg and taking care of your debts, be sure to save and invest for your child’s future too.

Not sure how much to put aside for each bucket? A popular budgeting method is to apply the 50/30/20 rule respectively to the 3 buckets. You may need to adjust your percentages based on your personal circumstances.

Remember to stick to your budget so your financial plans won’t get derailed. And don’t forget to take advantage of any marriage or parenthood government grants available in your country to alleviate hefty expenses.

3. Pay off high-interest debts fast

Debts are roadblocks that can keep you from reaching your financial goals.

For instance, credit card interest rates are notoriously high and can snowball over time. Given how crushing these debts can become, clear them out of your way as soon as possible. This could mean cutting back on luxuries for a while, even if it’s something for your newborn, like branded babywear or a designer teddy bear.

Investing should also take a backseat until you settle your high-interest debts, as their repayment amounts could be higher than any potential investment returns.

4. Prepare a bigger umbrella for a rainy day

With the extra load of parental responsibility, you’ll need to update your emergency fund amount. We recommend that your fund covers at least 6 to 12 months’ worth of expenses for your expanded family.

Having a contingency reserve puts you in a stronger financial position to deal with any curveballs that life may throw at you – such as unforeseen medical needs, out-of-pocket expenses for urgent home repairs, or the sudden loss of any regular income.

You may need to tap into this emergency fund at a moment's notice, so be sure to keep it in a liquid, low-risk account.

5. Review your insurance policies

Review your family’s insurance policies to ensure that all members have adequate coverage. You’ll want to add your newborn to your health insurance coverage and review your life insurance needs to protect your family financially, should something happen to you. You might be able to save on some of your existing insurance premiums too. For example, term life insurance usually has lower premiums and is generally more cost-effective than whole life insurance. Changing to a more appropriate plan could free up a significant chunk of your money for other purposes.

6. Get an education fund up and running

Providing quality education for your child is a top priority for most parents. If you’re planning on sending your child overseas, the bill can run up to several hundreds of thousands of dollars. Wherever you’d like to send your child for university education, it’s important to be conscious of the costs. One way to plan ahead is by discussing this topic with your partner and creating a dedicated fund to invest towards your kid’s education. You could also consider putting a portion of the money from the monetary gifts your child will receive over the years into this fund – he or she will thank you when the time’s right.

Read up on how to set your financial goals and stay on track to achieve them.

7. Make your money work harder for your child

Many people park large amounts of cash in a bank's savings or fixed deposit account. But unfortunately, no matter how "high-yield" their advertised interest rates may appear, they usually come with several conditions. These conditions can make it difficult to grow the cash you're squirrelling away for your child.

Our cash management portfolio may be a smarter alternative to save for short-term goals, such as your child's birthday party, Christmas, and family holidays. Not only is there no minimum balance for you to earn a projected rate, but there are no setup fees or hidden catches.

Consider investing a portion of your savings for longer-term goals that may be anywhere from 5 to 20 years away, such as paying for your child's tertiary education or helping out with the down payment for his or her first home. Investing lets your money grow with market returns and compound interest, and helps it beat inflation.

8. Fund your ambitions

Parents are often caught in the middle as the “sandwich generation”, responsible for taking care of their ageing parents and young children.

You can avoid burdening your children in the future by taking care of your own long-term financial needs and starting retirement planning early.

At the same time, you shouldn’t neglect other individual or couple goals, such as moving into the right family home, setting up your own business, or funding your passions.

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