Expecting a baby? Plan for future
You have a new arrival on the way and so many things to plan. While you are reading up about health related matters, one important thing to consider is how your finances will change with a newborn. Of course, expenses will increase. Doctor visits, clothes, other items such as a pram, food, baby formula — the list is endless.
The first thing you need to do is set up a budget. Figure out the additional expenses, pre- and post the baby. Before the baby is born, you need to check your medical insurance for the amount of cover, what type of room it includes and other terms and conditions associated with the health insurance policy to estimate the out-of-pocket expenses.
Most policies, except group covers, do not cover maternity expenses. If you want to store the stem cells, you need to have ₹50,000 for the same. Check if you plan for this from your savings or do you need to break some investments for the same.
Once the baby is born, the expenses just don’t stop. People tend to overbuy clothes and toys and babies outgrow them really fast. Do remember this and plan your purchases accordingly.
Buy items that have long-term utility. In my experience as a parent, small children really do not know the difference between expensive and non-expensive toys and it is the parents who want to buy everything that’s in the toy store.
There are other non-essential expenses, which have become essential these days like a photo shoot pre- and post the baby. Do it only if you can afford it and not just because others are doing it.
It is also important to increase your emergency fund from 3-6 months of expenses to 6-9 months of expenses. During pregnancy and with a newborn, you need to be prepared for emergencies. Start building this in an ultra-short-term debt fund.
Typically, once the baby arrives, there is very little time to think about other matters and hence it is advisable to plan in advance regarding investments for the baby.
These days, relatives and friends mostly gift the newborn in cash. Parents tend to choose child policies believing that these plans will give good returns and can be used for higher education.
However, child policies have given very low returns and it is best to invest the cash gifts received in equity mutual funds.
Opening a savings bank account for the baby is also recommended.
It is also important to add the child to your health cover at work or in any individual health policy. In all this, you must continue to plan for your retirement and other financial goals as well.
This may be a challenge given the additional expenses for the baby, especially if there is day care or additional help at home costs involved. You would need to have a hard look at different categories of expenses and see where you can cut some expenses. This is because at an overall level, the outgo is going to increase. Soon, you will need to start saving for the child’s school too. All this cannot be at the cost of your retirement planning.
Thus you need to strike a balance between expenses and saving and try to stick to the 30/30/40 rule with 40% of income going towards savings and the balance being split between expenses and loan repayments.
Finally, if you are planning to quit work, you need to run a financial plan to check if you can really afford to leave your job.
Having a baby is one of the most wonderful things in your life as well as the hardest thing in your life. Some advance planning can make it easier.