Money

The 6 most important financial questions to discuss with your partner before having a child

Before you take the plunge, ask yourself: are you financially ready to have children?
 

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For most people, starting a family is a momentous event in their life. It can be easy to get so excited about the joys of having a child that you overlook the practicalities involved with having a family. Even if you’re emotionally ready for parenthood, it’s important to assess if you’re ready for the financial ramifications of a growing family. To answer this question, the important thing to know is the cost of raising a child in Singapore. According to estimates by SmartParents.sg, it costs at least $670,000 to raise a child in Singapore in 2019. That is a hefty financial responsibility and it’s important to start off on a sound financial footing if you’re planning to have children. Having a financial plan can help you navigate the challenge of handling the costs of parenthood. So before taking the plunge, here are six questions to ask yourself to help evaluate if you’re financially ready to have a child.

 

1. Can you afford the immediate costs of having a child?

A simple question to start with is to check if you are financially secure enough to deal with the immediate costs of having a child. This would include costs such as pre-natal medical appointments and hospital delivery charges. Just the costs of bringing a child into the world can be substantial. Data collected by SmartParents.sg shows that a normal vaginal delivery in a public hospital can cost up to $6,000. On the higher end of the range, a c-section in a private hospital can go up to $17,000. That’s a large sum of money, and the costs would be even higher should there be any medical complications during the pregnancy and delivery, or if your baby has health issues. Aside from the medical costs, you’ll also spend money preparing for the baby’s arrival. It costs money to prepare a nursery. You’ll have to shop for baby clothes, toys, gadgets and equipment. And you may need a confinement nanny and be prepared for childcare costs if both of you decide to continue working after your maternity or paternity leave is over. If you don’t have enough money to handle these initial out-of-pocket costs, then there’s a good chance that you’re not financially ready to be parents.

 

2. Do you already have an emergency fund?

Having a baby means having to completely care for the well-being of another human being, and part of that responsibility means being financially responsible. Are you ready for any unforeseen or unpredictable events that could affect your financial standing? Do you have enough of a cushion to take care of your family in the event of an emergency? An emergency fund is a must-have for anyone planning to have children. It provides a financial buffer against hardship, should anything unfortunate happen during the pregnancy, delivery and beyond. Having an emergency fund can also alleviate stress and worry as well as give you more options when making big life decisions. For instance, if you wanted to take a longer period of absence from work in order to spend more time with your baby, having a large emergency fund could allow you to do that. Building an emergency fund also trains you in the skill of budgeting, something that will be much-needed in your parenting years. How much should your emergency fund be? We suggest having at least six months’ worth of your income set aside; the more you have, the more financially secure you are. So before you think of having a baby, review your financial safety net and assess if it’s enough to cover the expenses of a budding family.

 

3. Have you worked out what your household budget will be once a child comes along?

Being parents involves a major lifestyle change and additional expenses. Do you know how much your monthly expenses will be once you have a child? It could be a smart move to work out a new household budget that involves the expenses related to your baby. Perhaps you may need to cut back on other variable expenses in order to divert funds to childcare and parenting costs. This can also open a discussion about whether you or your partner can be a stay-at-home parent and for how long, and what your money situation would be like in single income household versus a double income household. How can you afford the lifestyle you want and financially take care of your family? What tradeoffs do you need to make in order to raise your child? What extra frills do you want to provide for your child and how can you afford to do that? This is an important conversation to have with your partner before you decide to start a family. Once you’ve settled on a new household budget, we recommend giving it a trial run of two to three months. This can give you an indication of how realistic the budget is, and if it’s something you can sustain in the future. One thing to remember that is that you should still have a savings element in your budget. If your new budget means no savings, it’s likely you’re stretching yourself too thinly. You may need to rethink your budget or explore options that will help increase your income.

 

4. Do you already have a home?

This is an important question to ask as owning property is one of the largest financial commitments we make, other than having a family. It would not be ideal to have to manage two major financial milestones at the same time; you don’t want to be expecting a child and putting aside money for your HDB downpayment and building up savings for renovation costs. It’s not impossible, but it would be very tough and probably require much more sacrifice. Life would be much less stressful if you’ve already settled your housing situation and expenses before starting a family. That way, you would’ve already successfully navigated one financial landmark and can better manage the expenses of parenting.

 

5. What’s your debt-to-income ratio?

Your debt-to-income ratio provides an indication of how much of your monthly income goes towards repaying debt. How do you calculate this ratio? Simply divide your monthly income by your debt repayment. Let’s say that your total household monthly income is $6,000 and your total debt repayment amounts to $900 every month. This means you have a debt-to-income ratio of 15 per cent. Ideally, you should have a debt-to-income ratio that is under 20 per cent. In this context, this ratio excludes housing on the assumption that you’re using your CPF to pay off your monthly mortgage. A debt-to-income ratio that is higher than 20 per cent is a signal that you have too much debt. Before starting a family, it would be best to pay down as much debt as possible so that you’re in a better financial situation. To reduce consumer debt, you may want to consider options as 0 per cent balance transfers or debt consolidation facilities that can help lower the amount of interest you’re paying on your debt. Having a baby is stressful enough on its own; you don’t want to be worrying about whether you can make your minimum monthly debt payments while being a new parent.

 

6. Do you have life insurance coverage?

When you have a child, that means you have a human being who’s completely financially dependent on you until they grow to adulthood and are able to earn their own way. As such, it’s important to ensure that they remain financially secure regardless of what happens to you or your partner. That’s why life insurance is so crucial for families, particularly those with young children. The best situation is if you’re already insured even before you have children. After all, there are other loved ones in your life who may need financial protection in the event of your early death. If you do have life insurance, that’s great! Becoming a parent is a big moment, and it’s the perfect time to review your life insurance needs. With a new addition to your family, your life insurance coverage should be higher and include the costs of raising a child. We recommend taking some time to assess how much it would cost to increase to your ideal protection level, which policies are most suitable, and how to work the costs of premiums into your budget. If you don’t yet have life insurance coverage, now’s the time. Being a parent means protecting your children from financial uncertainty so it’s important that you and your partner are be sufficiently insured.

 

This article first appeared on Singapore Life, the region’s fastest scaling technology company that focuses on wealth.

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