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Budget for your R2m child

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In 2013, government estimated that the cost of raising a child from birth to the age of 18 is an incredible R1,7m. This figure doesn’t include university fees, so depending on the course of study, you can add another R100,000 to R300,000.

It’s vital to establish the cost of having and plan financially for this event. With careful planning and the right financial solutions, this will ensure that your new chapter in life will be a rewarding and financially secure one,” says Nolene Parboo, senior manager for savings and investments at Standard Bank.

Plan early

It’s never too early to plan for a child; putting money aside each month for your new family can make a huge difference. For example, if you put aside R600 per month at an interest rate of 9% for two years before you have the baby, and continue to save until they are five, you will have saved R69,428 when they are ready to start school.

It’s important to increase the savings annually by at least the inflation rate. As a rule, your money halves in its value every seven years depending on the inflation rate. If you are planning to have more than one child, save for that too. Banks have many savings plans to choose from so a visit to your banking consultant can be very helpful.

Short-term savings

There are always unexpected expenses when you have kids at school, such as books, school trips, parties or entertainment costs, so it’s a good idea to have some money in a short-terms savings plan. Rather put your money into a fixed deposit or a money market account and examine the different options offered by your bank. You will be able to find a plan suited to your pocket and objectives.

Another option is to pay extra money into your home bond and access it when you need it. This will have the added benefit of reducing your interest payments while the money is invested.

Medium- to long-term savings

Education or endowment policies are fixed-term investments designed for education savings. The investment is for a period of five years or longer and requires you to save a regular amount each month for the duration of the policy. It’s not easy to access the funds you have saved and if you cancel this policy, you will be penalised. It is therefore important that you are sure you can afford the instalments and won’t need access to the money during the contracted period.

You can also explore unit trusts. These are held for at least three years and allow you to access your money within a few days. They need some management, so a financial advisor should be consulted.

Older children

If your children are headed for university, a more aggressive savings plan may be needed. If you are still paying off bonds and cars, it can be difficult to find the extra cash. You need to weigh up the need to save for your retirement with supporting a child through university.

“Your retirement is just as important as your child’s education and a balance needs to be struck. There are other options some families may consider such as allowing their children to have part-time jobs and assisting with managing household expenses. This will not only help with expenses but it is a valuable life lesson as it not only teaches your child independence, but also financial responsibility,” says Parboo.

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