Here’s a list of 5 money management tips for new parents:
Tip 1: Plan a new monthly budget
While you may already have a monthly budget in place, adding a new member to your family alters expenses. If the new member is a baby, then your expenses will likely double. From medicines, diapers, toys, clothes, and food to vaccinations and paediatric check-ups, there are several expenses that need to be added to your monthly expense ledger. It may seem tempting to cut back on savings and investment to increase your monthly cash flow, but doing so can jeopardise your long-term financial plans and stability. Instead, look for personal expenses you can reduce to make up for the additional expenses for the baby. For instance, if you frequently dined out before the baby, you can consider reducing this expense once the baby is born. Similarly, cutting back on subscriptions and entertainment costs can also help free up funds.
Tip 2: Increase your emergency fund
If you have been financially responsible all this while, you likely have an emergency fund in place with 6-12 months’ worth of living expenses. However, once your baby is born, you must consider increasing your emergency fund’s reserves. This is one of the most crucial money management tips new parents tend to overlook. The logic is simple. Once the baby is born, your monthly expenses will increase. Since you’ll be spending more each month, your emergency fund (which was built on a certain expense assumption) will not last for 6 months.
Let’s say your monthly expenses before the baby was Rs. 35,000; accordingly, you had an emergency corpus of Rs. 4.2 lakhs. After the baby’s birth, your expenses increase to Rs. 50,000 per month. In this case, you need an emergency fund of Rs. 6 Lakhs to tackle 12 months of expenses. It’s best to plan and take steps towards boosting your emergency funds before the baby arrives because managing expenses and saving more becomes difficult after the baby’s birth.
Tip 3: Start investing for new goals
Another crucial money management tip for new parents is to start planning for new goals once the baby arrives. The birth of a baby adds new financial goals to your checklist. This includes goals like getting a preschool admission at 3 to joining a formal school at 5. These goals cannot be postponed and require prior planning. Given the rising education costs, you must start setting aside funds to fulfil these goals. Remember, saving is not enough; you must invest these funds wisely to see results. For these short-term goals, you can consider safe and reliable investment options like fixed deposits that offer assured returns of around 8% p.a.
For other long-term goals, like planning for your kid’s higher education and marriage, you can opt for equity mutual funds. Since these goals are still a couple of decades away, you can afford to invest in market-linked instruments. Remember that inflation-beating returns are essential for such goals, given the exorbitant cost of professional degrees.
Tip 4: Increase your term life cover
Financial prudence dictates having a life cover as soon as you start earning. So, if you have already invested in a term life plan, consider increasing your coverage once the baby arrives. Your term life insurance is designed to offer a fiscal safety net for your family. Therefore, it should offer adequate coverage for them to live life without financial worries, even in your absence. As a new parent, you must prepare for the unexpected by factoring in your baby’s expenses into the life cover offered by the plan. Consider your current expenses and liabilities and include your child’s education, marriage, and other possible future goals into the mix to determine the optimal cover. This is one of the few money management tips new parents cannot ignore.
Tip 5: Add your child to the health insurance plan
While vaccination and paediatric costs are exorbitant, you cannot buy a separate health plan for a newborn. However, most insurance plans extend health insurance coverage to the newborn baby after the child completes 90 days. Adding your child to your own health insurance plan helps cover early vaccination and post-natal care expenses. If you don’t have a health insurance plan or you and your spouse have different plans, you can buy a family floater policy to cover the entire family. Remember to implement this money management tip for new parents to save on out-of-pocket expenses on healthcare during your child’s growing years.
