5 Changes a New Parent must make in their Financial Plan

Becoming a new parent is overwhelming. Suddenly, you are not only responsible for yourself, but another person who depends on you for everything. From the moment a baby comes home, you have to be mindful of your every action and be cautious about how it will affect the baby, in terms of his/her health and upbringing. Also, having a baby requires you to make changes in your financial plan to take care of its every need and secure his/her future well. Listed below are five changes you need to make in your financial plan once you become a new parent. 

Plan a new monthly budget 

Having a new member in the family increases your monthly expenses, and if it's a baby, it's twice the expenses than having an adult person at home. From food, medicines, diapers, clothes, baby care products, visiting a paediatrician, there are several expenses that you would need to include in your monthly expenses. Now, it is easy to increase your budget by cutting down your investments and savings, but that is not the best approach. Cutting down your investments and saving can jeopardize your financial future. Instead, take a closer look at the existing budget and make the necessary changes like cutting down on few personal expenses. 

Increase your emergency corpus

Emergency fund is the money kept aside for emergencies. It is a good practice to keep 6 months to 1 year's expenses as emergency corpus. When a baby comes home, as your monthly expenses increase, this will call for an enhancement in your emergency fund also. For example, initially if the monthly expenses were Rs 30,000 per month, and accordingly, your emergency corpus was Rs 3.6 lakh, after the baby is born, your monthly expenses increase to Rs 40,000, then your emergency corpus should be Rs 4.8 lakh. Also, working mother at times may prefer to take a sabbatical for a year or two to take care of the child. In such cases, the emergency fund should be bigger. 

Start investing for new goals 

Once you have a baby, you need to add more financial goals to your list, focusing on the baby. For example, once he/she turns three, you need to put him/her into a school, and such expenses are high. This is a goal that cannot wait. So you have to ensure that the money is ready and made available at the time of admission. One smart way to save money for this is by opting for Fixed Deposits. Since you are aware of the interest rate in advance, you know exactly how much money you need to invest to get the amount you need at the end of the tenure. 

Then there are long-term financial goals like higher education, marriage – goals which are at least 17 to 20 years away. This also means the cost to achieve these goals will be very high, thanks to inflation. So you need to start investing regularly in financial instruments that can give inflation-beating returns over the long term. The best possible way here is to start a SIP in an equity mutual fund. 

Include your child in health policy 

Once the child turns 90 days, he/she is eligible for health insurance. Since you cannot buy a health insurance plan for a child, you have to include his/her name in your health policy. However, if you do not have health insurance or you and your spouse are covered under separate individual policies, you should buy a floater health insurance policy that covers the entire family. Include your child's name in it.

Increase your term life cover

Term life insurance is meant to take care of your family's financial needs in your absence. So if you bought the cover before the child was born, you may have looked at your current expenses and liabilities to determine the optimal cover. Now with the baby, you will have to include your child's education, marriage, etc. in your future financial goal. So, the term life insurance coverage amount should also be increased to ensure those expenses are taken care of if something happens to you. So, calculate the difference between the cover that you need and the cover you have, then fill that gap with a second term plan.