Financial management for new parents
There are few things as life-changing as becoming a parent. The arrival of a new baby can be exhilarating because you are not only responsible for yourself but suddenly there is this tiny human being who depends on you for everything.
This new phase of life also heralds a period when managing finances can get a tad too overwhelming. The responsibility of nurturing another human being entails extensive prepping up of your finances because parenthood is nowhere comparable to any other financial goals that you may have had. There is a deluge of new expenses and savings and investment goals become more expansive because of the new addition to the family. While financial planning for this chapter in life essentially starts with the appearance of the two pink lines, the process assumes a whole meaning once the child is born.
Neha Vashisht (name changed) who welcomed her first child last year narrates, “Ideally the foundation stones for your finances for this period should begin when you start planning a family. In hindsight, I feel that that gave us a significant headstart in preparing our finances for this tumultuous change.”
For new parents, this shift can be difficult to navigate especially if the mother’s income gets hampered due to maternity break. Vashisht says, “When I was pregnant, I hadn’t planned on taking a year-long break from work but things didn’t go according to plan and I could only go back to work after 14 months. Since we had envisaged this situation where the double income arrangement would not be possible for a few months, the diminished income did not hit us as much as it would have had we not ramped our savings and investments before our child was born.”
For many women returning to the workforce after being blessed with a cherub can take longer than what they would have expected. This is especially true in the case of women who do not have paid maternity leaves and may be self-employed or were obliged to quit their jobs during their pregnancy. According to a report published by Quartz, 70% of Indian women in the formal workforce who left their jobs for family reasons struggle to gain a foothold in the workforce again despite upskilling themselves.
SIP investments in mutual funds can establish the groundwork for the scenario where one of the parents has to stay at home to take care of the new born. Deepak Chhabria, CEO of Axiom Financial Services, says, “Any delay in investment planning could lead to lower capital accumulation and delay your goals. For the power of compounding to work its magic, you need to start before your child is born.”
For example, an SIP of ₹10,000 per month for 3 years with an expected return rate of 15 percent will give you returns of ₹96,794. Based on your risk appetite and your goal timelines you can invest in a mix of equity and debt funds that will help you comfortably sail through the initial few years where one of you may not be able to work full-time. What’s more, the right mix of mutual fund investments will also prepare you for the next stage which is when your child starts going to school.
Besides decoding baby expenses, the kind of childcare support systems that new parents have access to also weighs in on a couple’s finances. Yes, recurring costs like baby food, regular check-ups and a constant need to buy new clothes as your little one keeps growing can be difficult to manage in the beginning but another major overhead expense in today’s time is childcare facilities. What with the joint family system getting eschewed and nuclear structures becoming the norm, it is a challenge for many working couples to find a reliable daycare facility or babysitter that suits their budget.
Ankita Malhotra (name changed), a tech professional at an MNC who has two children aged five and three says, “With my first child, I was lucky to have my in-laws and my parents around who made motherhood a breeze when I rejoined work. But things were tough when I was expecting my second child as we had shifted abroad. My husband and I knew childcare would be a major expense and so we prioritized being debt-free before our daughter was born. That eased up things on the financial front – so much so that we could afford a babysitter right after the delivery.”
• It is absolutely unpleasant contemplating about tragedies but now that you have a baby to take care of for years to come, you have to be prepared for any emergencies that may arise. Ensuring adequate insurance is indispensible for a child’s security should something happen to the parents.
• In continuation with the sentiment expressed in the previous point, add your child’s name as one of the nominations in all your assets and investments. Writing your will is also a good idea.
• Do not relegate saving and investing for your child’s higher education at a later time. While these goals could be 17-20 years away, the costs of achieving these goals are very high and inflation complicates things. So you need long-term investments for these goals that can generate inflation-beating returns.
• SIP investments in mutual funds can establish the groundwork for the scenario where one of the parents has to stay at home to take care of the new born.
This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.