While having a child can be incredible, both in terms of emotional and physical highs and lows, it can also be costly to have a child in Singapore.
How much should you have in savings before planning for a child?
There is no fixed amount of savings you need to have before you can start planning for a child, but you should realise the costs involved, and know the relevant Baby Bonus Gift Scheme, Child Development Account (CDA) benefits, and Medisave grants that you may receive.
The major cost items are typically the delivery costs and the on-going costs to raise a child. These costs can also vary drastically depending on individual choices.
For the delivery of your child, opting for a public hospital in C Class ward can cost you as low as $840, while choosing a private hospital can set you back as much as $15,000. This excludes your pre-natal checks which can range from several hundred dollars up to a few thousand dollars or more. If there are complications, your costs can be even higher.
Knowing you will need to fork out this sum during pregnancy allows you to choose an affordable option, and provides you with visibility into the amount you need to prepare for.
The same goes for on-going expenses once your baby is born. While you don't need to set aside an upfront amount, you need to gauge whether you will be able to afford the additional monthly costs of your newest family member. For reference, your baby may add about $12,000 in costs over a year, or $1,000 a month.
With the arrival of your baby, your entire life changes, physically, emotionally and financially. Here are four ways you need to start planning your finances differently.
1. Planning your monthly budget
With close to $1,000 in additional monthly expenses coming your way, you need to either be confident of paying for it from your income or realise that there are other areas that you need to cut your spending on.
If you do not currently keep a budget, it may be a good time to start working on one to understand exactly where your money is going each month and whether you can afford the extra costs.
Apart from just the baby essentials, having a child also affects all other aspects of your monthly budget, including your savings, insurance needs and long-term investments. You may also want to provide for more than just the essentials.
2. Planning your emergency savings
The recommended amount of emergency savings to keep in reserve is between 6 and 12 months of your average monthly expenses. This acts as buffer for unforeseen scenarios such as retrenchments or health emergencies.
It also empowers you with the flexibility to take certain decisions in the immediate-term, including extending your maternity leave without pay if you wish to.
With a new baby in the household, you should also account for the additional expenses each month and add that sum to your existing emergency savings.
3. Planning your insurance needs
With a new mouth to feed, what used to be sufficient insurance coverage may no longer be adequate.
To protect your family's financial future, you need to increase your own and/or your spouse's life insurance coverage to ensure that your family continues to be sufficiently insured in the event your ability to provide for them is unexpectedly curtailed.
To realise and plug major insurance gaps in your life, you should arrange for regular reviews with your financial advisor.
In addition, you may consider buying a more comprehensive private integrated policy (IP) to complement MediShield Life, a basic health plan your child is protected with from birth. With AIA HealthShield Gold Max, you can provide a holistic healthcare solution for your child at every stage of their recovery.
While MediShield Life covers large hospital bills, pegged at subsidised levels for those admitted in B2/C Class wards in public hospitals, AIA HealthShield Gold Max provides coverage for higher A/B1 Class wards and private hospitals.
You can also consider purchasing a life insurance and critical illness policy for your newborn, as he or she will unlikely have any pre-existing conditions, and premiums tend to be lower for the same level of coverage as an adult.
With comprehensive coverage, you will have peace of mind while your child grows up, and your child will enjoy coverage in their adulthood, regardless of any health conditions they may be diagnosed with or injuries they have growing up.
AIA Absolute Critical Cover is a critical illness insurance plan that provides broad coverage across 175 conditions, including 10 conditions under a Pre-Early Benefit, 150 multi-stage critical illnesses and 15 special conditions. You also retain peace of mind with a Power Reset Benefit that fully restores your coverage amount 12 months after the last claim, and a Power Relapse Benefit that provides coverage if you suffer a relapse for the same critical illness, once 24 months have passed from your last claim.
Additionally, you get to leverage on AIA's suite of complementary healthcare solutions. This includes WhiteCoat, our exclusive telemedicine partner giving you on-demand access to Singapore-registered doctors via video consultations, and Medix, an exclusive Personal Medical Case Management solution providing personalised support from leading specialists globally to discuss your diagnoses and recommended treatment. Finally, AIA Vitality, our health and wellness programme aims to reward you for upkeeping a healthy and active lifestyle, in the believe that prevention is better than cure.
4. Planning your long-term investments
With new monthly expenses, you may find yourself having less to put towards investing for the future. However, this is an area you cannot afford to neglect.
Since your child will only attend tertiary education in about two decades, you have enough time to accumulate the amount required. The later you start, the more stressful it will be, as you will need to set aside a larger sum and have a shorter investment time-horizon to grow your investments. So choose to start earlier.
You also need to balance this with building your retirement nest egg. Rather than put less towards what is required, you should consider cutting some of your discretionary expenses today to make up for any shortfall. If you have difficulties putting much away, contributing a smaller sum will help a lot more than completely ignoring it.
Having an adequate retirement nest egg gives your child the ability to fulfil their own career and lives in adulthood and may even provide a legacy when we eventually pass on.
Planning early and prudently gives you less stress and improves your chances of success
Having a child will impact your life in profound ways. Your daily routine will change in drastic ways and you will find yourself spending more on things you never even thought about in the past.
To avoid being overwhelmed by how much you need to do, plan for and spend on, you need to give yourself sufficient time. By implementing prudent financial plans as early as you can, you can even out any additional stress over a longer time horizon work towards your financial goals.
While planning for your future finances is important, you also need to think about the best way to protect yourself and your baby during your pregnancy. AIA Mum2Baby Choices provides expectant mothers extensive coverage against 10 pregnancy related complications, and death. Your baby will also receive protection against 23 congenital illness from birth, and hospitalisation benefits for incubation, ICU/HDU, and Hand, Foot and Mouth Disease for three years.
You can purchase the AIA Mum2Baby Choices protection from as early as 13 weeks into your pregnancy. What's more, you can transfer your plan to your child within 60 days of birth, with no questions asked, to enjoy guaranteed protection up to age 100.