By Rebecca Lee
Financial tips to help you save up for your bundle of joy
As you embark on your parenthood journey, you may have questions about the finances you need to prepare or set aside. As with most major decisions in life, proper planning will go a long way in allowing you to savour the joys of parenthood while keeping your wallet well-managed at the same time. So how does one go about saving for a child?
Coping with Medical and Other Costs
On average, hospital fees may range from $816 to about $16,000, depending on the class of ward you have selected and whether you are giving birth in a government or private hospital. The Medisave maternity package can provide you with additional support, where Mothers can claim a maximum of $2,550 for a typical natural delivery or up to $4,400 for a typical Caesarean delivery. A total of $300 can also be used for any inoculations and vaccinations for the child per year. To help you plan for and manage the costs associated with the delivery, you can check out the details at http://www.moh.gov.sg.
As parents-to-be, you will also need to consider expenses such as a confinement nanny, diapers, milk powder and baby cots. Although the wide range of baby expenses may seem daunting, they are manageable if parents exercise financial prudence and spend within their planned budget.
In addition, it is good to purchase insurance plans that help to defray medical expenses, and avoid depleting your savings. Parents can use Medisave to purchase Medishield insurance for themselves and their children.
There are several government measures to provide financial support to parents. Parents will obtain the Baby Bonus cash gift, can choose to co-save via the Child Development Account (CDA) and can tap on various tax reliefs and rebates. The Baby Bonus cash gift of, $4,000 would be deposited into your nominated account in four equal installments of $1,000. The first installment will be deposited within 3 weeks after you join the scheme and the fourth when your child is 18 months old. The Government will also match dollar-for-dollar the amount of savings contributed to your child’s CDA up to a maximum of $6,000 (for the first and second child). You can save any amount into the CDA until your child turns 6 years of age.
First-time mothers are also able to claim 15% tax relief for her annual income. For the second child, working mothers may claim relief for an additional 20% of their incomes, and 25% for the third child and beyond. The total amount of child relief claimable is $50,000 per child.
In addition, parents can also make use of the Parenthood Tax Rebate to offset their payable income tax. Currently, parents can claim $5,000 for the first child, $10,000 for the second and $20,000 for the third child onwards. If the rebate is not completely used within the first year, the amount will be carried forward to offset future income tax payable.
Government subsidies are also available if you choose to put your child in center-based infant care (2 to 18 months) or child care (above 18 months to below 7 years old). Depending on whether or not the mother is working, subsidies for centre-based infant and child care range from $150 to $600 per month.
For more information on the support measures under the Marriage and Parenthood package, you may wish to refer to http://fcd.ecitizen.gov.sg/MarriageNParenthoodPackage.
Besides planning for daily expenses, some parents also start thinking about planning for their child’s future. According to Biondi Goh, certified financial practitioner licensed by the Monetary Authority of Singapore, she advises couples to start saving for their child's or children's education early, and leverage on the power of compounding interest to multiply their savings. She shares some financial tips from her website “SGPersonalFinance.com”. Other factors such as whether or not you plan an overseas education for your child will also impact the amount you require. Local university tuition fees can be paid using CPF Funds. While there is no hard and fast rule about the amount you should be setting aside, the important thing to note is that forward planning and good management of your finances will allow you to be prepared for most situations. This may include setting aside money from your paycheck each month to be channeled into a savings or investment instrument. Educational savings plans cater to different budgets and expectations. There are plans that cost as low as about $2 a day. You could also deposit funds into your children's accounts, to impart positive values on financial planning and provide them with a head-start on saving money.
Tracking Your Expenditure
Scott Mitchell, Senior Vice President and an Appointed Representative with ipac financial planning Singapore Ltd advises couples to keep tabs on their expenditure and savings on a monthly basis. “Expenses include everyday necessities, home maintenance, discretionary spending, and so forth.” He also advises against buying “with money you don't have” and warns against losing track of spending on credit cards. He adds that it is important to live within one’s means, and to identify the areas in which one can cut some costs. For example, if you used to eat out every single day, it may be time to look at eating in more often, and you would be surprised at how quickly little savings add up. It is equally important to distinguish between “needs” and “wants”, and think twice about spending on luxuries that may derail your financial planning.
Other ways to manage your expenses will include pooling of resources with like-minded people. There are several local parenthood forums such as SingaporeMotherhood.com and Mummysg.com where you can often find parents who are giving away or selling items which their children have outgrown.
Parenthood is a journey and not a race. With some careful planning, you will be able to better enjoy your journey as you experience the birth and growth of your child.
I Love Children wishes you all the best in your financial preparations for your bundle of joy!
I Love Children would like to thank Scott Mitchell, Senior Vice President and Appointed Representative with ipac financial planning Singapore Ltd for his contribution to this article.