Managing Family Finances For A New Baby
My daughter will have just turned three years old as I write this article — three years of joy, laughter, fun and angelic innocence.
I remember that no sooner than the next month after planning to have a baby, my wife tested positive for pregnancy — one of the happiest moments in my life! Our excitement grew as her tummy expanded and finally our little angel was born and entrusted into our care.
Entrusted is big word with an impact just as huge. It made me think not only of the present but even more of the future. It involves taking responsibility for a soul, a person’s needs, being there for one fully dependent on you.
When our baby was conceived we shored up our finances and prepared for the coming months. Being a financial planner myself, we discussed our resources (not much at that time, like most marriages are when still starting) and how best to prepare for the birth. The funds we had were split into an emergency fund and a “Pregnancy Fund”.
The “Pregnancy Fund” was primarily for check-ups, medical procedures and medicines/vitamins. Of course we were also preparing for contingencies. Having determined the amount, the next question was where to put it?
A full pregnancy lasts nine months. That means the fund would have that time horizon. Two things I particularly considered were liquidity and return. Of course, I wasn’t expecting spectacular yields as accepting huge risks was out of the question.
A savings account would be very liquid but the returns nil. A 35-day time deposit could earn more but the thing with TDs is that you only get your money upon maturity. Pre-terminating incurs charges, which I did not want. A special deposit account would also earn a higher rate of return but pre-termination isn’t allowed, which meant I wouldn’t be able to withdraw money if needed.
Savings, no. Time deposit, not fit. SDA, too illiquid. I then went exploring for other instruments. I considered a bond fund. Higher return? Check. Liquid? Check. Holding period? Six months. Pregnancy term: Nine months. What if we needed funds prior to the nine months? Next, a UITF with a holding period of just 90 days. Higher returns? Check. Liquid? Yes. Volatile? Yes. The year was 2009 and the global economy was just recovering from the greatest recession since the Great Depression. Very risky choice.
The last instrument considered was a money market fund. Higher return than a savings account? Yes. Liquid? The holding period was just one month. Accessible? You could access it anytime after the holding period — no need to wait for maturities. So we went for a money market fund that gave a return higher than a savings account — a perfect fit for our investment horizon as well as risk appetite.
Throughout the nine months, we were, from time to time, able to draw from our money market fund for medicines and check-ups. The bulk stayed and earned higher than if we had put it in a savings account. When our baby was born, I took used my credit card to pay the hospital bills (additional points) and then withdrew from the money market fund to pay the credit card bill in full. Money did not sleep, returns were maximized, and I earned credit card reward points in the process.
The nine months — and the safe delivery of our little angel — turned out well for me and my wife. We planned and prepared for it and matched our finances with our goals. Our story, however, has just begun. Expenses have started to knock on our door — new challenges for the responsibility entrusted to us parents.
Rienzie Biolena is a Registered Financial Planner of RFP Philippines. Learn more about personal financial planning at the 67th RFP program this January 2018. To inquire, e-mail email@example.com or text <name><e-mail><RFP> at 0917-9689774.
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