5 Money Management Tips For New Parents
Posted on: 23/Sep/2020 10:51:42 AM
Becoming a new parent is overwhelming. Suddenly, you are not only responsible for yourself, but another person who depends on you for everything. From the moment a baby comes home, you have to be mindful of your every action and be cautious about how it will affect the baby, in terms of his/her health and upbringing. Also, having a baby requires you to make changes in your financial plan to take care of its every need and secure his/her future well.
Here we list the changes you need to make in your financial plan once you become a new parent.
Number 1: Plan a new monthly budget
Having a new member in the family increases your monthly expenses, and if its a baby, its twice the expenses than having an adult person at home. From food, medicines, diapers, clothes, baby care products, visiting a pediatrician, there are several expenses that you would need to include in your monthly expenses.
Now, it is easy to increase your budget by cutting down your investments and savings, but that is not the best way to do it. Cutting down your investments and saving can jeopardize your financial future. Instead, you should look at the budget you have been following and make the necessary changes. And, to include the extra expenses for the baby, you might need to cut down on your few personal expenses.
Number 2: Increase your emergency corpus
The emergency fund is the money kept aside for emergencies. And it is a good practice to keep 6 months to 1 years expenses as emergencies.
Now, when a baby comes home, your monthly expenses will increase. So, automatically, you should increase the amount of your emergency fund also. For example, say before the baby was born, your monthly expenses were Rs 30,000 per month, and accordingly, 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.
Also, sometimes working mothers prefer to take a sabbatical for a year or two to take care of her child. In such cases, the emergency fund should be bigger.
Number 3: Start investing for new goals
Once you have a baby, you need to add more financial goals to your list, focusing on the baby.
For example, once he/she turns three, you need to put him/her into a school, and such expenses are high. This is a goal that can`t wait. So you have to ensure that you have the exact amount of money when he/she gets admitted. One smart way to save money for this is by opting for Fixed Deposits. Since you are aware of the interest rate in advance, you know exactly how much money you need to invest to get the amount you need at the end of the tenure.
And then there are long-term financial goals like their higher education and their marriages. These goals are at least 17 to 20 years away. However, this also means the costs to achieve these goals will be too high, thanks to inflation. So you need to invest regularly and invest in n financial instruments that can give inflation-beating returns over a long period. The best possible way is to start a SIP in an equity mutual fund.
Number 4: Increase your term life cover
Term life insurance is meant to take care of your familys financial needs when you are not there. So if you bought 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 have to include your childs education and marriage, etc. in your future financial goal. So the term life insurance coverage amount you need would also increase to ensure those expenses are taken care of if something happens to you.
So, calculate the difference between the cover that you need and the cover you have, then fill that gap with a second term plan.
Number 5: Include your child in health policy
Once the child turns 90 days, he/she is eligible for health insurance. Since you cannot buy a health insurance plan for a child, you have to include his/her name in your health policy.
However, if you do not have health insurance or you and your spouse are covered under separate individual policies, you should buy a floater health insurance policy that covers the entire family. Include your childs name in it.
