Welcoming a baby? It’s time to plan your finances!

Stepping into parenthood is such a wonderful journey that brings abundance of happiness into a couple’s life. As soon as a woman finds out that she is pregnant, the expecting parents start planning their onward journey- right from zeroing in on a good maternity hospital, great doctor and pregnancy-related tests to planning a great baby shower, maternity break, preparation for arrival, buying clothes for the little one to decorating and welcoming the new born either into a new house or prepping up a nursery; parenthood is a lot about taking on new roles and responsibilities.

Due to rising cost and improper financial planning for child’s future, 80% of parents have to pay for the education from their day to day income or general savings. Overall, lack of planning can impact the future through loans and depletion of savings.

Here is a checklist of all your expenses when you are expecting:

•Pregnancy related costs: Get ready for regular medical tests, doctor’s consultations and quality care for the expectant mother. If the pregnancy has any complications, then expenses can multiply drastically.

•Maternity leave and sabbatical: If the mother is working, you might have to take into consideration a longer maternity break (than paid for) or a sabbatical for a year or two. Factor in loss of pay if any due to maternity leave from work.

•Prep for arrival: From buying clothes to setting up a nursery or even buying/renting a larger house - it needs a lot more than thought and budget allocation

•Delivery and hospitalization: This surely will be the biggest chunk of your expenses. When you are pre-booking at the hospital for birth, parents should take expense estimates and keep aside the sum.

•Pediatrician and vaccinations: The current situation has put a lot of emphasis on health and when it comes to your child, there is no way you would like to even take the slightest risk. The first 18 months will have frequent doctor visits and regular doses of expensive vaccines. Do plan for these expenses.

•Plan for child’s education: Planning for child’s education should be started right at the birth. It creates discipline and gives more time for investments to grow.

Save and invest

IT employees Jayashree Ventat and Ventata Raman were initially in a dilemma, thinking how well they could manage their finances if they plan a baby, but they went ahead with the decision of embracing parenthood.

“We both are working and we realised we can manage the financial part with just some planning. Our first priority is now to save money and invest it in desirable instruments,” says Jayashree Venkat.

Take the SIP route

It’s not enough to just save money, one has to invest. Certified financial planner and practitioner Gaurav Mashruwala suggests investing via a Systematic Investment Plan (SIP). “One can consider having different SIPs, like one for education, another for health and medical needs, another one for retirement, one for marriage and so on,” he says, adding couples should not delay parenthood just because they feel they need to accumulate more finances.

SIP or systematic investment planning is a method through which you can invest in mutual funds through small and periodic installments. Tie your goal to one SIP and if it is education or medical requirement, let it be only for that purpose.

“Never ever use that SIP amount for other expenses. How much money one can invest in SIPs depends on factors like one’s monthly income, whether one is planning to buy a house, a car, and whether he/she has dependent parents and so on. So all these things should be considered,” says Mashruwala.

Future expenses and finance

A report by a popular MNC bank says that parents are going the extra mile to ensure their children have a good start in life. About 71% of parents start making plans for their child’s education and 60% start making funding decisions, before their child begins primary education.

The highest proportions of parents (96%) with at least one child in paid-for education are in India, the report adds.

This shows how much parents plan for a child’s future that includes education and insurance.

“We are aware that we need to spend a few lakhs for quality education. My husband and I have already decided our child’s school and the ways to invest money to get good returns. Since we both are earning, we know we could manage all expenses including health insurance for us,” says mom-to-be Sugirta Krishnamoorthy.

It’s not just a child’s education; parents also need to think about expenses for vaccination, other health expenses and daycare centres.

“Considering the present pandemic situation, we won’t prefer a daycare centre. Since my relatives are around, we don’t require a nanny too,” she adds.

If a couple doesn’t have any emergency fund till now, this is the time to set up one. If you have one, ensure it includes all childcare expenses, says investment advisor Satheesh Kannan.

This fund should cover six months to nine months worth of family expenses. “As your family relies more on your income now, ensure you have term insurance with sufficient coverage to meet your child’s future too. If the amount is not sufficient, you need to buy an additional term insurance policy. Similarly, buy a personal health insurance even if you have company’s health plan,” informs Kannan, the Bengaluru-based investment advisor at FinIntellect.

Also, couples need to figure out whether one of them will take a short career break, if so they need to work on the budget accordingly.

Parents need to save monthly to achieve their financial goals for children and invest systematically. Invest in a portfolio of equity and fixed income assets. Equity mutual fund is the better route as it gives wide diversification, suggest financial advisors.

Now, everybody takes a good selfie, and that can be used to achieve your financial goals. Mashruwala asks parents to take a selfie and on the picture one can write their financial goals like education, travel, health expenses and so on.

Key takeaways

•Set a goal and start an SIP according to your needs (For instance, if your salary is ₹60,000, you can allocate money accordingly)

•Equity mutual fund is a great choice for investment as it offers wide diversification

•Remember to allocate money for pregnancy-related expenses and vaccination expenses for the newborn

•Ensure you have term insurance with sufficient coverage to meet your child’s future

This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund