How are you all?
Planning for a baby, and moving forward for the same, is not confined to shopping clothes, cradles, feeling the first kick of baby, getting delight after seeing the ultrasound reports, rather it is an important part of your life, that needs proper attention and planning like finance and expenses to be incurred pre and post-childbirth.
A child is not only going to increase your happiness but also your expenses, so to enjoy happiness without being worried about expenses you need proper planning of finances.
Before planning a baby, a couple needs to prepare themselves from all the aspects like, mentally, physically and financially. The couple really needs to estimate their budget, while planning for their baby. While budgeting for the baby, the couple needs to plan their leave from the office, along with that financial plan for the house during the leave.
Through this blog, we are going to guide you with your financial planning for the baby. Read the blog and get yourself, financially ready for your baby.
Planning for The Pre-Delivery Period
Plan for the expenses:
Receiving the news of pregnancy, fills a couple with joy and happiness, from the time they get to know about pregnancy, they start dreaming and planning for everything like their baby’s cloth, food, room, accessories, cradles, and many more things. Regular medical checkups, a proper diet to the mother during her gestation period, regular ultrasound, all becomes necessary during pregnancy. These all add extra expenses to your income and cost a big part of your budget, that’s why your income and budget needs financial planning to tackle these expenses.
Saving in your bank account can be an option but, with the increasing inflation, will your savings be able to tackle the increasing expense?
For most private clinics or hospitals, the combined expenses for pre-delivery tests and delivery can reach up to Rs 3 lakh. Considering the high charges for medical tests and hospitalization, it would be prudent to put away a small amount every month in a liquid fund right after you decide to have the baby. Liquid funds are debt funds that are easy to redeem, anytime, and also give good returns.
You can also choose dividend option in liquid funds, where you receive a part of your benefits as income, on a monthly basis.
Know your company’s leave policy:
According to the Maternity Benefit (Amendment) Act, 2017, a woman employee with less than two children is entitled to a maternity leave of 26 weeks, however, the leave policy or leave duration varies with the HR policy of different companies. So, you need to check this beforehand. If you want to extend the leave, find out how much you will be paid for it, also enquire, whether you can combine other forms of leave, such as privilege or medical leave.
Plan a new budget:
You already have a budget for your household expenses and your extra expenses like dining out, movies, and many more things. A new member is arriving your family, now may be your extra expenses would then be used as the cost for medical checkups, hospitalization, delivery charges, diapers, napkins, baby oil and more, rather these essentials would cost more, which can disbalance your budget. So, better prepare a new budget, including these new expenses, this will help you manage the expenses within your budget and save you from running out of money.
Build an emergency corpus:
Medical Emergency doesn’t come with a buzzing alarm; hence you should always be ready to deal with it. Similarly, pregnancy may have a medical or non-medical emergency, for which you should be prepared. The corpus amount should be equal to at least six months of your household expenses and should be in addition to the medical corpus you build for pre-delivery check-ups and hospitalization.
Post-delivery plan –
The baby has arrived, you are busy celebrating their arrival, you are taking care of your baby, you are nurturing your baby, but at the same time, you must take care of the new expenses too, that’s hectic. But you really don’t need to panic. Invest your money in mutual funds, and let your money earn for extra expenses.
Plan for Expense Up to Three Years:
During raising a child, expenses up to three years include, baby food, baby oil, diapers, new clothes, new cradles, vaccination charges, medical emergencies and more, for which you need to be prepared before, because, during these three years, your most of the attention and time will be spent towards your child, and not job.
You can start your investments in a debt fund, at the time you start to plan for a baby. Debt funds are short-term investments, less risky and give good returns, in a short period. It would be much better if you plan a SIP investment in a Debt fund, where you can save a small amount monthly.
Plan for Expense After Three Years:
When the child attains three years, most parents start planning for their education. They start to search for the best school, for their child, where they will get a good nurturing environment, and the best knowledge. You must already be aware of the fact, the best education cost is increasing positively with the increasing inflation, which means, there is a need to pre-plan for your child’s primary education.
For your child’s primary education expense, you can invest in Equity funds. It would be much better to go with dividend option in Equity fund investments. This will help you pay the monthly school fees and coaching fees. This can also help you pay the expenses for your child’s extra co-curricular activities, like cricket class, football class, dance class. And many more.
Plan for Your Child’s Higher Education:
A survey roughly estimated, on an annual basis the education inflation is about 10-12 percent. If we assume the least increase in inflation per annum by 8%, estimation clearly calculates that if an engineering course that costs Rs 6 lakh at present will cost around Rs 20 lakhs after 16 years. Similarly, if an MBA course that costs around 10 lakhs, would costs around 34 lakhs after 16 years.
Mutual fund investments lead the investments sector, due to its many unique features like, good returns over long investment tenure, different investing funds as per investors objectives requirement, beating the inflation rate, and more.
When you are planning for your child’s higher education, start your investments in Equity funds, when your child is small, like 5-10 years in age, better start a SIP, that will help you earn a good profit at its maturity.
Suppose a person, whose child is 10 years old, most probably after 8 years the child would get his higher education. The person analyzed the current cost of an Engineering course at present that around Rs 6 lakh. The person calculated an average inflation increase of 8% per annum for 8 years and calculated that he will require around 12 lakhs. The person started investing in mutual funds through SIP investment. He started investing Rs 7500 per month in a mutual fund, at a 12% rate of return for 8 years. The following figure shows his approximate returns at the time of his child’s admission in engineering college:
As of now you would have understood, how coming of a new member, your baby in your family, affects your finance. If you will not prepare for it before, it can affect your budget and expense, on a large scale, which will ultimately lead to a lot of pressure on your head.
It would be much better, you start your investment, in funds based on your requirements and needs, and then plan for a baby. If you invest and then plan, you will definitely enjoy, these precious days and moments, as your investment is earning for your child.
Most importantly, always consult a financial planner or advisor, before starting your investments. They will help you select the best mutual fund, for your investments as per your requirement.
You can also contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).