As first-time parents, managing your baby and finances can become tedious. This blog shows you a clear path of financial planning.
When discussing financial planning, we aim to achieve our long and short-term money goals.
For instance, I aim to buy a house in 10 years. Or, I would like to have Rs. 2,00,000 in my account until the end of this year.
When you live independently, you can modify these goals per your needs and living conditions.
However, when you begin a family, get married, and are expecting a baby, things take a 180-degree turn.
Now, you cannot think solely of yourself, because now you must take into consideration your partner and your baby.
As a first-time parent, letting this good news and responsibility sink in can seem overwhelming, but it doesn’t need to be if you have a plan on how to navigate through the financial journey before you embrace parenthood.
That is why we have curated this blog with some essential aspects you must consider while preparing a financial roadmap as first-time parents.
First-time Parents’ Financial Planning Considerations
One of the first thoughts of a to-be-parent is to ensure that the child leads a secure, flexible, and comfortable life.
Therefore, financial planning becomes essential right when you hear you’re expecting, as it determines how you manage your money after the baby arrives.
Arranging your income, expenses, savings, and investments appropriately can enhance returns and minimize overall risk.
A carefully laid out financial plan can caters to your children’s benefits and helps them reach their important milestones such as pursuing higher education, helping them elevate to a better lifestyle or ensure a strong investment portfolio in key assets.
So, let’s dive into the five essentials of financial planning that can help you ease your worries as a first-time parent and secure your child’s future.
Update your insurance coverage
Insurance offers security to individuals in case of unforeseen and unfortunate events.
If something happens to one or both parents, the child/ children must have enough to survive the tough circumstances.
An adequate life insurance coverage taken by parents early helps secure their kids’ futures.
Term life insurance policy
First things first, take notice of how secure you are when it comes to health and well-being.
If you don’t have a term-insurance policy until now, it’s time to get one along with keeping your family’s best interest in mind.
One of the popular reasons why a term-insurance is a good option to have includes the fact that it covers the necessities and any outstanding liabilities.
The benefit you accrue from the policy should be seven times your annual salary.
If you already have life insurance in your name, consider its terms and conditions, and modify it if revisions become necessary.
Also, since life is truly unpredictable, ensure that you update the beneficiary of these policies and who would use them safely.
Health insurance policy
While term insurance is a must-have, a topped up health-policy is a wise choice to have as it covers most of the new expenses you can expect with a newborn in an updated health insurance.
You can add your baby to your existing plan or purchase a new one within 30 to 60 days of delivering the baby.
Disability insurance policy
Another addition to the insurance group is disability insurance.
It acts as a safety net if you become incapable of working due to any mishaps or sickness in your life.
With this insurance, you receive income for the specific period you are ill.
The plans may be long or short-term, and the terms may vary.
When you consider coverage for this insurance, do account for an increase in your monthly expenses with a kid on board.
Make New Financial Goals for Investment
All throughout your single and married life, you must have seen your savings and investment pattern change as per the goals you had in mind.
This could’ve been previously a short term goal like going for 2 international trips in a year or purchasing a car in 2 years.
But, now that you have a child to raise and a family to start, it’s important to take note of the long-term goal and map your investments around it - right from the immediate needs of getting your kid’s education expenses to funding their higher education and planning your retirement plans .
Another aspect to take note of is the impact of inflation on your economic goals, so it’s best that you invest in long-term plans that will overshadow inflation’s impact and secure your financial future.
But then, don’t get lured to put in your money on only high-return investments, as they often come with high-risk levels.
The trick to achieving bountiful RoI is by diversifying your portfolio - ranging from low-risk low-return to high-risk high return in varied proportions.
It will help minimize losses and maintain average returns.
Create Room For Emergency Funds
The very purpose of an emergency fund is to be useful when there’s an emergency situation in your life and the need for funds is dire.
For instance, you get into an accident, and your insurance covers a limited amount only.
If you do not have adequate savings or are in between jobs and have no income, your emergency fund becomes your shining armor.
When the baby enters this scenario, you must also account for their needs in such situations.
A child’s unforeseen needs require you to prepare for the contingencies. Therefore, begin accumulating funds to create a shock-proof safety net.
Even if you face unemployment or layoffs, you must have at least 6 to 12 months of coverage to sustain your family, including the new member.
An emergency fund becomes highly critical when the family depends on a single member’s income.
It’s great if you already have an emergency fund, if not then it’s best that you estimate your monthly expenses and start saving.
Track your Money Flows
Tracking your money flows is critical, irrespective of your marital status.
Maintaining your expense flow on a tracker app can help you gain in-depth insights into your money-making and spending habits.
Analyzing this spending data will help you figure out the highest and lowest paying areas when you track your outflows.
This will help in cutting down costs on impulsive purchase and frivolous spending and help you increase your savings overtime.
Prioritize your Retirement
When a newborn arrives, your entire focus will shift toward adding value, comfort, and happiness to your kid’s life.
You would want your kid to have everything they want - including a safe and secure future. However, catering to your child’s needs and tending to make their life comfortable shouldn’t be your sole motive throughout the financial planning.
While it’s excellent to care for the several needs of your child, you should also think about your future. Putting yourself first and planning for retirement prevents you from depending on your children after retiring.
You need not rely on anybody to take you on vacation, pay your medical bills, etc. Your savings should be adequate to support you in the future.
You can begin retirement planning by outlining your goals and aspirations. Keep a vision of your post-retirement life and work and act accordingly.
It might be challenging to consider anything other than your child’s needs as a first-time parent. However, financial planning for the distant future keeps you secure and protected.
Often, we get so caught up in our lives that we forget to plan for the future. In such cases, we may be spending more than usual and accumulating debts. Now that you know the essential considerations for financial planning as first-time parents, you should also learn to enhance your savings.
It can be scary to overcome such a situation and prepare for a baby. Whether you planned for it or got a surprise, you must take a holistic approach to prepare your finances. Since it can be tough to multiply your income in a short time, you must consider smart ways on how you can plan your finances effectively.
We hope this guide clarifies your doubts relating to first-time parent financial planning. Discuss the points with your partner and financial advisor and find an effective strategy. Your baby deserves the best, and staying financially sound by preparing beforehand will benefit you in the long run.