Parenting and financial planning to meet needs of a growing family should happen in tandem. Here are 10 financial tips that will help you sail smoothly through parenthood.
If you’ve recently become a parent, chances are you’re getting sleepless nights for reasons other than just a crying infant. The birth of a child can certainly compel you to get your finances in order and take a hard look at your short-term financial decisions.
Here are 10 essential financial tips for new parents that will ensure a painless transition to parenthood.
Revisit your financial goals:
As a couple, you may have to revisit some of your financial goals both before and after the birth of your child. You will need to set and prioritise financial goals both for the short as well as the long term.
Some of your couple goals like a holiday abroad or making a down payment on a house might have to take a backseat for the time being. Saving up for childcare and your child’s education should be prioritised when setting your financial goals.
Additional reading: Align Your Needs With Your Financial Goals!
Create a new budget:
If you already have a budget in place then it’s a good start. However, with the addition of a child to the family, your budget may need some revision and fine-tuning. Sitting down with your spouse every month to take stock of your finances and planning your expenses is a good way to manage your money.
Child care can place tremendous strain on your existing finances with non-negotiable expenses on diapers, clothing, food supplies, medical check-ups etc.
Once you get an idea of the expenditure you will incur, create a budget that reflects your new lifestyle and expenses. Remember to keep an account of all your expenses. This will help you track where your money is going and identify cost-saving opportunities as you navigate life as a parent.
Additional Reading: 5 Investment Ideas New Parents Can Consider For Their Child
Set up an emergency cash reserve:
As a thumb rule, one should earmark three to six months’ worth of one’s living expenses for an emergency corpus. However, with a baby in the picture, you will need to up your contributions to this fund especially if you’re a single parent.
This fund will prove to be of immense assistance in the unfortunate event of the death of one of the parents, unforeseen medical costs not covered by insurance or if the new mother has to stay out of work longer than expected due to unanticipated health complications.
Additional reading: Here’s How To Put Together An Emergency Fund
Sign up for both life and disability insurance:
It’s important to have a Life Insurance plan as an individual. It becomes all the more imperative once you become a parent. You may have some Life Insurance cover through your employer, but it isn’t enough. If you get laid off, you will also lose your Life Insurance cover. If you and your spouse already have a plan, you must get your child added to your Life Insurance policy.
Life Insurance can help you take care of costs like mortgage, school tuition or future wedding expenses. You also need to take into calculation spends that you might incur upon premature death of either parent so that the child and other parent are well-provided for.
New parents can opt for Term Insurance that lasts until their dependents pass out from college and are no longer in need of financial support.
Disability insurance is useful for eventualities when one or both parents become unable to work due to a disabling illness or injury. Remember that employer-provided insurance may not be enough to cover essential expenses like child care, household expenses etc. for a reasonable length of time.
You must bear in mind that some policies may pay benefits only if you are unable to work at all, rather than being unable to do the specific kind of work that you currently do.
Additional reading: Why Taking Stock Of Your Family’s Life Insurance Need Is Important
Prioritise retirement savings:
Remember to keep your retirement goals in mind even when saving for your child’s education. While there may be a tendency to divert funds towards child care, it would be prudent to set aside a certain amount every year for your retirement kitty. Being self-sustainable post your retirement is certainly a more attractive option than depending on your children during your old age.
Additional Reading: Tips To A Financially Peaceful Retirement
Automate your savings and/or debt payments:
Once you’ve identified your financial goals as a couple, set up auto debits or auto deposits. This way you’ll never miss out on achieving your financial goals. This will also ensure that the rest of your financial goals are tailored to them.
Additional Reading: Manage Debt Wisely!
Starting a family won’t put a strain on your financial resources if you plan your financial moves well. Did you know investing in Mutual Funds and Fixed Deposits can help you take care of your child’s educational expenses?