Introduction

Welcoming a child is a great occasion to celebrate, but it also brings immense financial responsibilities. For Indian parents, financial planning for new parents is vital for managing the costs associated with pregnancy, childbirth, and child-rearing. From getting health insurance for the newborn to ensuring a solid college fund for kids, proper planning helps provide peace of mind. This article provides a step-by-step guide to exploring the finances of being a new or expecting parent and gives helpful financial advice to new parents.

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Step 1: Understand All the Costs of being a Parent

Being a parent involves many costs, both short and long-term. Before delivery, various costs include doctor's consultations, diagnostic tests, medicines, and the multiple charges levied for hospital delivery. Currently, a normal delivery in a private hospital in an urban location costs between ₹40,000 and ₹1,50,000, while a caesarean section could cost more than ₹2,00,000. After the baby is born, the vaccinations and consumables (diapers, formula, etc.) can quickly place unexpected strain on a budget. The costs of being a parent include education, healthcare, and must not be neglected (e.g. expected professional degrees could cost ₹50-70 lakh by 2040, e.g. inflation). Financial planning for new parents begins with fully understanding the costs associated with being a parent and planning accordingly.

Step 2: Create a Parenthood Budget

Recognising your spending priorities and beliefs requires a dedicated budget for financial advice for expectant parents. As a first step, record all one-time expenses (e.g., crib and stroller and delivery costs) and how regularly you expect to incur costs (e.g., childcare and medical checkups). Be sure to consider inflation, particularly since education and healthcare costs typically increase in India by 5-7 per cent annually, while general inflation is about 4-5 per cent. Second, it also accounts for any potential reduction in employability, e.g., maternity leave (26 weeks for maternity under the Maternity Benefit Act, 1961), part-time or fewer hours. Third, note your expenses, projected savings, and parenthood goals with the help of budgeting apps or spreadsheets.

Step 3: Set Up an Emergency Fund

An emergency fund allows you to avoid disruption during unexpected expenses, whether a medical emergency or job loss. A sound metric for building an emergency fund is 6-12 months' living expenses in a liquid account (e.g., savings account or short-term fixed deposit). For example, if your monthly living expenses are ₹50,000, you will want to target anywhere between ₹3-6 lakh. It gives you peace of mind, which enables you to focus on your newborn and avoid financial stress, merely because parenthood/parenting typically involves unexpected bills. Optimise this stage early on, because parenting change typically brings unanticipated expenses.

Step 4: Secure Health Insurance

Obtaining health insurance for your newborn is important to ensure your costs are covered for these medical expenses. Most health insurance plans in India have a waiting period of 9-36 months from the date you purchase your health insurance plan to avail of maternity benefits. A policy should, at a minimum, cover prenatal care, postnatal care, delivery, and hospitalisation of the newborn. You can easily add a newborn to the family floater health policy. You can include the newborn immediately after birth.

Consider a super top-up plan, as this is an affordable policy for extra protection. Health insurance policies, if deemed necessary, may cover expenses for complications from childbirth and afterbirth. Expenses for NICU care for your newborn can be as high as ₹ 10,000- ₹ 50,000 a day at private hospitals.

Step 5: Take out life Insurance

Both parents should have a term life insurance policy in place to protect the child's future in case of any unforeseen, premature death. You should take a term life insurance policy of 10-15 times your family's annual salary. If you would like to take out a term policy to provide a reasonable amount to fund primary life goals and expenses, like a college fund for your kids, then use that to help decide how much you should purchase. For example, if your family's gross annual income is ₹ 10 lakh, you may want to look for ₹ 1 crore to ₹ 1.5 crore, based on the child's expectations.

Step 7: Realign Your Financial Goals

Parenting entails a change in financial priorities. It requires taking another look at short-term goals like purchasing a car, to account for the eventual costs of childcare. It also requires reviewing and changing your investment portfolio to ensure balanced risk, as being a parent might make you a bit more risk-averse. In addition to adjusting your goals, you should create a will to stipulate how you want your assets to be allocated if something happens to you, and you also should update the nominations you have set on your bank accounts and their investments. Financially, a new parent component advises that parents review their plan annually to ensure they address their changing needs, such as the inevitable increase in education costs for a growing child.

Conclusion

While it takes some foresight and discipline to prepare financially for parenthood in India, it sets you up for the smoothest possible start into parenthood without undue stress. If you establish a budget, arrange for health insurance for your newborn, invest in a future college fund for your kids, and follow the general financial advice consistently given to new parents, you will be well on your way to securing a safe economic future for you and your family. It is essential to think ahead of time before conception, take advantage of tax-efficient vehicles like PPF, and seek the advice of a SEBI-registered financial advisor for personalised advice. With proper preparation, parenthood can be one of the most rewarding financial and emotional experiences.

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