How to manage finances after the birth of a child

Financial Planning | admin | September 28, 2011 at 5:15 am

Suresh Wadhwa is a software engineer in his early thirties, while Rupali is a housewife pursuing fashion designing by taking up assignments with a local boutique. They have just had their first child, and realise that this will change their lifestyle and impact their finances. Suresh earns a good income and the family lives comfortably. They are servicing a car loan and are also paying an EMI for the house, which they bought a year ago. They invest through SIPs and have a PPF account. They would like to know what they must keep in mind so that they do not miss out on any important financial aspect in this new phase of their lives.

For the Wadhwas, the arrival of a baby means that not only will their expenses go up, but they will also have to start thinking about saving for the child's future. Balancing the two will be a challenge. They should start by making a budget for the child because it will help them focus on what is essential for him rather than overspending on what they would like the baby to have.

Given his new responsibilities, Suresh must also check if he has adequate insurance. He must also include the baby in the health insurance cover for the family as soon as possible. He should not fall prey to the agents' spiel on taking a life cover for the baby as it serves no purpose and is a waste of money.

While starting with the saving and investment plan for the baby, the couple must take their investible surplus into consideration. Any investment for the child should not be at the cost of cutting on the one for their long-term goals, such as retirement. If they do this, they will lose out on the compounding benefits and will end up with a smaller corpus than the one they need. In such a case, it may be a good idea to postpone saving for the child for a few years. To make up for lost time, they can set aside a larger amount for the child when their income improves.

Once they start planning for the child, the chances of their missing out on payments and dues will be high. So, it will be a good idea for them to put their EMIs, credit card dues, utility bills and taxes on an auto payment mode through direct debit instructions to banks. This is important because missing out on these will impact their credit score and have long-term consequences. They should also consider preparing a will so that their child is protected in case of their untimely demise. All these measures will ensure that their child is financially secure while their investments remain on track.