Parenthood is one of the most anticipated and memorable milestones in a married couple's life. While young parents often take corrective measures to stabilize their minds, bodies, and routines, they often overlook their financial health. So here are six important financial decisions young parents must take now to ensure a smooth financial transition to parenthood.
1.Chalk out a new budget
Babies are expensive. Period. And to manage these expenses you need to revise your budget and may even have to cut corners. The recurring expenses of baby food, clothing, hiring domestic help apart from the already existing prenatal and postnatal medical expenses can make your budget go haywire. Your spouse may have to take a sabbatical and the household would then have to survive on a single income. Hence it is important to clearly chalk out a new budget, monitor the inflow and outflow of money carefully and live conservatively for a while till your financial reserves replenish again.
2. Buy a term insurance plan
Every parent wants to provide for their child the best life imaginable and this is possible only through careful financial planning. Buying term insurance is one such decision. Term insurance is an economical and popular life insurance option in which, when the insured person dies during the policy tenure, dependents or beneficiaries are paid a death benefit by the insurance company. It is probably the cheapest way to ensure the financial safety of your child in your absence. With premium charges as low as Rs 12,000 per annum, a cover as high as 1 crore can be secured, which can act as an income replacement to take care of the financial needs of your child when you are gone.
If both you and your spouse are working, it is a good idea for both of you to take a term insurance policy according to your individual incomes as it provides two-fold security and ensures that education expenses, wedding expenses, and other such requirements of the child do not get compromised due to the untimely demise of either or both of the parents.
3. Add your child to the family health insurance
Days post the birth of your child are very crucial for the newborn as it adjusts to an alien environment. In such cases, parents need to be wary of infections, allergies and other issues that can affect the baby’s health. The related medical expenses can burn a hole in your pocket if you do not have a health cover for your baby. Once the baby completes 90 days, it becomes eligible for health insurance, and hence at this point, you should consider adding your child to an existing health insurance policy or buy a family floater health plan.
4. Build an emergency fund
If your spouse takes a career break post the birth of your child, or for any medical reason quits her job, the financial burden on you as the single earning member could be huge. This calls for having more financial security and hence building an emergency fund that covers 6-12 months of living expenses is a wise investment move. An emergency fund can serve a cushion while your spouse prepares herself to join the workforce. It can also be used to meet unforeseen financial requirements that may arise while caring for your child. A wise move here would be to invest in liquid funds via SIP. They yield steady returns and some offer instant redemption, allowing easy access to your money when you need it the most.
5. Plan for your child’s education
Every parent wants to provide a top-notch education for their child however the expenses involved with education are only getting costlier. If not planned properly education costs can severely hamper your financial health and may result in your child ultimately graduating with considerable student debt. A good move here would be to start building an education corpus for your child’s college education from now on so that by the time your child turns 18, you have sufficient funds to support him. Since it’s a long term goal you can start a SIP in an aggressive equity oriented fund, rebalancing the allocation towards debt as you near the goal.
6. Plan for your retirement
Most importantly, do not forget yourself in the process of taking care of your child. You can take loans for buying a house, or for the education of your children but you can’t take loan for your retirement. Your retirement needs have to be met via your investments. The earlier you start the more corpus you would be able to secure for your old age, therefore preparing your investment through systematic savings in fixed deposits, National pension scheme or mutual funds (based on your risk profile) is a prudent choice.
To sum up, be prepared to make some hard and proactive financial decisions to accommodate the new member of your family. And don’t forget to consult a qualified financial advisor in case you find yourself in a fix while navigating your finances.
Ankur Choudhary is the co-founder & CIO of Goalwise.com