Essential Personal Finance and Money Management Tips for New Parents

Becoming parents is among those life-altering experiences for any couple. You are suddenly not just responsible for yourself, but also for another individual who entirely relies on you for everything. So, when you embark on this new journey, preparation is key, both before the child arrives and in the months after. It is particularly essential to be ready for the financial changes to come.

To help new parents embrace and navigate these changes, we have created a checklist of money management to-dos. Making essential financial arrangements now can eliminate stress down the line and allow you to provide the best life for your newborn.

Money Management Tips for New Parents

Managing money when you have a newborn can be challenging even for those who are otherwise disciplined with their finances. Unpredictable trips to the doctor or additional expenses that emerge on account of planning for the child’s primary education are just a few of the very many things to consider as part of your financial planning. The wave of expenses hits even harder when dual-income households transition to single-income households on account of maternity break, which may not necessarily be a paid one for every individual. So, if you are expecting a child or already have a newborn, take note of the measures mentioned below to ensure a financially secure future for your infant.

1. Set up a monthly budget

In the first three years, the cost of raising a child can be anywhere between Rs. 5 lakh to Rs. 10 lakh. Medicines, diapers, clothes, food, toys, clinic visits, and other childcare expenses can multiply quickly, apart from prenatal and postnatal expenses. Some expenses like medicines and diapers are recurring, while others like a car seat or stroller are one-time investments. Parents need to save up for big upfront costs and weigh the fixed expenses alongside others that may arise, such as monthly rents, renewal of long-term investment plans, and mortgages. What’s even more important for parents is to cut down on unnecessary expenses and clear other debts like car loans, credit cards, and education loans aggressively before the baby arrives, to create space in your budget.

2. Include your child in your health insurance plan

It’s not reasonable to assume that your health insurance provider would proactively contact you, or even better, automatically add your newborn to your health policy. Having a child is considered nothing less than a life-changing event. Naturally, insurance companies provide a stipulated enrollment period during which you can enroll in a new policy altogether or make changes to the current one. Most health policies demand that your newborn is added within 30 to 60 days after birth. So, if you include your child in the plan in the given timeframe, rest assured your child would get coverage under that policy.

3. Build an emergency fund

Facing job or business uncertainty is stressful, but even more so when your family is growing. That’s why finance experts always recommend creating an emergency fund that will cover about a year’s worth of living expenses in the event of a change in employment, business closure, layoff, or loss of a loved one, especially the earning member. An emergency fund offers assurance to a new parent while sourcing a new employment opportunity. When allocating funds towards your emergency corpus, remember to calculate it as per the new family budget. Having an emergency fund becomes all the more crucial if the entire family is dependent on a single family member’s income.

4. Invest in term life insurance

A life insurance policy is the best long-term investment a parent can make for a newborn, whether or not you find it worth it. Like other kinds of insurance, in exchange for a monthly premium, this policy safeguards you and your family, including the newborn, against worst-case scenarios like a parent’s untimely death. Finance experts recommend investing in a life insurance policy before the child arrives, if possible. Typically, a 20- or 30-year plan is apt for most families, to safeguard children through school or college. It’s also worth considering insurance offered through an employer, the premium of which would be cheaper than the one charged by private insurance.

Conclusion

There’s a lot of effort that goes into raising a child. From adequate nutrition to education, health to career-related needs, parents have to look after everything to ensure their child’s present and future are safeguarded. And this is possible only when you are financially disciplined and possess sound knowledge of money management. After all, a healthy financial future is not about how much money you make. It’s about how you plan and manage. If you are having difficulty making a long-term investment or personal finance management-related decisions, consult a professional wealth management company like Dezerv.