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New baby on the way? The 5 financial steps you should take to prepare

When you welcome a new member into your family, planning your finances in advance can be greatly rewarding and lead to fewer hassles in the future. Right from pregnancy care to post delivery, having a baby involves a substantial expense. The early stages of infancy are the most expensive averaging around Rs.6.2 lakh between the ages of 1 to 4.

Regardless of your where you reside, a new baby demands a change in lifestyle and your approach to finances. According to studies, as of 2018, you’d spend around Rs.67 lakh on your child until he or she is old enough to start college. Therefore, it’s important that you prepare for your finances while you await your baby’s arrival. To do so, make use of this financial guide.

Opt for comprehensive insurance cover

When preparing for the arrival of your baby, you need to go back and look through your insurance policy with a fine-toothed comb. At this stage, you need to ensure that the cover extends to your child, and if it doesn’t, you need to take action to make it so. Generally, with most issuers, you need to wait until 90 days after birth to make your baby a part of your insurance plan. Additionally, medical expenses are particularly notorious for running up a hefty bill, and you need to pick a paediatrician that operates within your insurance network to keep your baby and your finances healthy. You can do this by contacting nearby clinics or your insurance company and inquiring about the policy coverage specifications.

Make investments to secure your child’s future

Investing in your child’s future is the best way to secure it. When expecting a child, you should invest as early as possible to earn significant returns. As every investment is unique based on their terms, your goals for investing can share the same distinction too. Based on your child’s need, make wise investments that will yield ample returns. Short term investments in the first few years can pay for the early schooling years upon maturity. A good option to invest in at this stage is a fixed deposit for a child, specifically the Bajaj Finance Fixed Deposit. With an affordable minimum investment amount of Rs.25,000, you can enjoy an interest rate of 8.75% on a 36 month tenor, payable at maturity. For example, investing Rs.1 lakh at the time of your baby’s birth will give you returns of Rs.28,614 by her third birthday, and this return value can easily be determined by using the FD calculator. This amount can then be reinvested at applicable fixed deposit rates, which will fetch you an additional 0.25% interest rate on renewal. When preparing for your child’s higher education, you can consider long-term investments that bring in significant returns. These can be mutual funds, PPFs or shares and bonds.

Identify and make amendments to your personal finances

While you wait in anticipation for your new family member, you need to seriously look into your personal finances and find out areas that need to be amended. If your household functions on the financial earnings of two working members, you need to prepare for the eventuality that either you or your partner may have to consider a sabbatical when the baby enters your lives. In preparation of that, you could start working on building a corpus to sustain your family without any stress.

Generally, having at least 6 months of living expenses saved in advance will give you some financial legroom. Another extremely beneficial practice to put in place during preparation is to cut down on unnecessary costs. Any and all funds saved can significantly ease the financial pressure of raising a child. Babies are accident prone too and having an emergency fund on hand will definitely come in handy. 

Draft a will

Drafting a will for your child is an added layer of financial security that you can put in place. After your demise, a will ensures that your child gets what you have planned for her. Furthermore, assigning close relatives as guardians is also a good move as it will give you peace of mind and ensure that your child is well looked-after.

Financially preparing for your baby is a lot simpler when you keep these pointers in mind. So, give these areas ample attention to ensure financial security.

Also, Read: What is Provident Fund?

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