Becoming a parent forces people to address financial issues they may not have considered in the past.
If your client is an expecting parent and feeling stressed about putting finances in order, here are some points to consider while planning for them.
Make a budget
Doctor’s visits, ultrasound tests, maternity wear, nutritious food, all add up to a reasonable amount. Depending on where they plan to have the delivery, their budget may vary. Most insurance policies do not cover child birth. Currently, insurance companies put a waiting period of two years on pregnancy. After the waiting period, they reimburse a fixed cost of say Rs.25,000 on having a child.
Prakash Praharaj believes setting up a budget helps expecting parents determine whether their money is being spent on things they really care about. “Baby food, child care expenses can add up to a big amount. I recommend expecting parents to adjust their lifestyle and reduce expenses by checking on splurging such as eating out and shopping.”
Seconding Prakash’s view, Suresh Sadagopan of Ladder7 Financial said, “Budgeting makes them understand the difference between how much they are spending and how much they should be spending.”
Expecting parents should create a contingency or emergency fund. The fund will come in handy for unforeseen circumstances such as exceeding medical costs or any health-related complications. Vishal Dhawan of Plan Ahead Financial Planners feels that such a fund should have at least 4 times the monthly expenses. He says, “Child birth might get covered by group insurance policies but there can be other overhead expenses.”
Though many employees get paid maternity leave, your clients will have to save for additional funds for the period when the paid leave gets over. Vishal Dhawan says that expecting parents need to prepare for a situation of a working mother. He says, “As a working mother will be at home, it is obvious it will lead to a drop in income. Hence, they should set aside a corpus and cut down on expenses from the beginning.”
Redo their financial plans
Priorities and needs of expecting parents change often. They may be saving to buy a new car, but now they may have other ideas for the same corpus – like child-education plan.
Kavitha Menon believes that once clients are expecting a child, they change their investment pattern. She says, “The client may want a new home or add one more nominee in their plans. If their portfolio is dominated by equity, I generally suggest they take exposure to debt funds. Also, I ask them to add more in emergency fund rather than planning for the long-term goal.”
Pay existing debts
Another good idea for expecting parents is to pay off all existing debts. It might be a strain right away for your clients, but it will be a relief in the next couple of years. “Pre-pay a portion of the loan to reduce the EMI,” Vishal says.