Here we list the changes you need to make to your financial plan once you become a new parent.
Number 1: Plan a new updated monthly budget
Having a new family member increases your monthly expenses, and if it’s a baby, it’s twice as expensive as having an adult at home. From food, medicine, diapers, clothes, baby care products, visiting a pediatrician, there are several expenses that you will need to include in your monthly expenses.
Now, it’s easy to increase your budget by cutting investments and savings, but it’s not the best way to do it. Reducing your investments and savings can jeopardize your financial future. Instead, you should review the budget you followed and make any necessary changes. And to include extra expenses for the baby, you may need to reduce your few out-of-pocket expenses.
Number 2: Increase your emergency corpus
The emergency fund is money set aside for emergencies. And it’s a good practice to keep expenses from 6 months to 1 year as emergencies.
Now, when a baby comes home, your monthly expenses increase. So automatically you should also increase the amount of your emergency fund. For example, let’s say that before the baby was born, your monthly expenses were Rs 30,000 per month and therefore your emergency corpus was Rs 3.6 lakh. After the baby is born, your monthly expenses increase to Rs 40,000 and then your emergency corpus should be Rs 4.8 lakh.
In addition, working mothers sometimes prefer to take a sabbatical for a year or two to take care of their children. In such cases, the emergency fund should be larger.
Number 3: Start investing for new goals
Once you have a baby, you need to add other financial goals to your list, focusing on the baby.
For example, once he reaches the age of three, you have to enroll him in a school, and these expenses are high. This is a goal that cannot wait. So you need to make sure that you have the correct amount of money when it is admitted.
There are long-term financial goals like their higher education and marriages. These goals are at least 17 to 20 years. However, this also means that the costs of achieving these goals will be too high, due to inflation. You should therefore invest regularly and invest in financial instruments that can offer returns higher than inflation over a long period of time. The best possible way is to start an SIP in a mutual fund.
Number 4: include your child in the health policy
Once the child reaches 90 days, he is eligible for health insurance. Since you cannot purchase health insurance for a child, you must include their name in your health insurance policy.
However, if you don’t have health insurance or you and your spouse are covered under separate individual policies, you should purchase a floating health insurance policy that covers the whole family. Include your child’s name.
Number 5: Increase your term life insurance
Term life insurance is designed to meet your family’s financial needs when you’re away. So, if you purchased the cover before the child was born, you must have looked at your current expenses and liabilities to determine the optimal cover.
Now that you have a baby, you will need to include your child’s education and marriage, etc. in your future financial goal. So the amount of term life insurance coverage you need would also increase to ensure these expenses are covered if something happens to you.
So calculate the difference between the coverage you need and the coverage you have, then fill that gap with a second long-term plan.
Opinions Are Personal: Author Anant Ladha, Founder of Invest Aaj For Kal Kota
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