How Do You Financially Prepare For Your First Baby?

Expecting your first child? You’re probably feeling a mix of emotions: elation, excitement and perhaps a little dread. After all, being a parent comes with a new set of responsibilities and expenses. With a new child depending on you, your budget may need an overhaul.

But don’t worry: getting financially prepared before your child arrives can ease the transition. Here’s what you can do.

Review your income and expenses

The first step is to review your budget. Total up all your income and track your spending for a month or two. Divide your spending into categories – such as dining, entertainment or transportation – this makes it easy to see if you are spending more than you should in a particular area. You can do this the old-fashioned way with spreadsheets or pen and paper, or you could get a mobile app that helps you with some of the legwork.

This helps you estimate how much money you spend every month, where it’s going to and how much you can afford to spend on future child-related costs.

Consider how much a new child will cost

Having a baby for the first time can be financially overwhelming, as there are so many costs that you may not anticipate. It's helpful to list down the expenses you'll incur, so that you're not caught unawares. Some of these costs will be large one-off expenses, while others (like childcare or baby formula) are monthly recurring costs. They include:

• Maternity expenses. Prenatal check-ups, tests and delivery expenses can take a toll on your finances. According to an article in The Edge, you can incur around RM20,000 from pregnancy to the delivery of the baby. However, this will vary depending on whether you opt for a government or private hospital, and whether you deliver naturally or through a Caesarean section.
• Childcare. If both you and your spouse are working parents, consider how you will care for your child. BabyCenter’s online poll suggests that 41% of survey respondents plan to engage with a babysitter or nanny. But at around RM1,000 a month, paid childcare can be expensive.
• Baby supplies. Cribs, playpens, strollers, baby formula, clothes, toys…the list goes on. The cost of these items will vary depending on whether you go for cheaper or more high-end brands.
• Insurance coverage. Typically, you should consider getting more life insurance coverage if you have an additional person – such as your new baby – who now relies on you financially. This may mean taking out a new policy or expanding your current coverage.
• Loss of income. If you or your spouse need to take off work to care for your child, consider if this would mean a loss of income.

Make room in your budget

Once you have your list of estimated costs, it’s time to make room in your budget. Consider if there are any monthly expenses you can cut out or reduce. This could mean cutting out a streaming service subscription, or meal prepping more often to save on food spending. If you’re having trouble trimming your budget, you may need to go back to your list of expenses and see if you can make do with cheaper alternatives. For instance, instead of buying brand new clothes and toys, you could try getting second-hand ones from friends and relatives.

At the same time, you’ll want to start padding out your savings. Now that you have one more person depending on you financially, any financial shocks – such as losing your job or incurring a major health expense – can deal a greater blow. Consider having an emergency fund that covers at least six months of expenses, or more if you have other dependents or if you are self-employed.

You could also direct your extra savings into a baby savings account. Having a dedicated account for your child can make it easier to pay off baby-related expenses, as you won’t have to dip into savings that were earmarked for other purposes.

Don’t forget to plan for education costs

Finally, don’t forget about education – although you won’t have to fork out for tertiary education right away, it’s likely to be your biggest child-related expense. It can cost around RM63,300 to RM370,100 to get an undergraduate degree in a private university in Malaysia, or around RM435,417 to RM1,999,305 overseas (these estimates include living costs).

It can seem impossible to save that much on an average salary – let alone for multiple children. But if you start planning early, you’ll have a huge advantage. That’s because of the power of compounding returns. The earlier you start investing, the greater your returns will grow by the time your child is ready for university.

To illustrate the power of compounding returns, let’s look at this scenario. Raj starts investing for his child’s education when he is 30, while Hana only starts investing when she is 40. Assuming a 6% annualised rate of return, here’s how much they would have by the time they turn 48:

Based on the scenario above, Raj manages to save RM81,024 by starting early. But delaying by ten years like Hana can lead to RM53,445 less in savings. Hana’s savings may not be enough to cover the total cost of tertiary education.

Now that you know how important starting early is, how do you know how much to save up for? Here’s where the Maybank Financial Goal Simulator comes in handy. You can use it to estimate a savings target based on whether you want to send your child to a local university or to an overseas university. It will also help you break down your target into monthly investment amounts, so you can stay on track to meet your target.

Start planning for your child’s future

Welcoming a new baby into the world is a wondrous, joyful occasion – you don’t want to spoil the experience by stressing out over money. But by getting a head start on your planning with the Maybank Financial Goal Simulator, the financial costs of becoming a new parent becomes much easier to manage.