6 Financial Steps You Must Take When Planning to Start a Family
Children bring a sense of happiness and contentment in our lives. Once you become a parent, apart from emotional changes, there are some financial changes that you must bring about in your life for the wellbeing of your little one.
PersonalFN has listed down some steps which must be taken when you are thinking of starting a family or have recently become parents.
PersonalFN is of the view that planning your finances wisely can help you and your little ones meet financial goals in life. Moreover, kids learn from what they see. If your child sees you make smart financial moves and having an organised approach towards finances, he / she is also likely to adopt the same in life. Thus, it is imperative that you make a suitable financial plan that can meet your family's objectives in a systematic manner and help you lead a stress-free life.
- Incorporate your child's financial goals in your financial plan
Till now your financial plan accounted only your personal goals such as retirement, vacations and so on. But now on, you will also have to provide for your little one's goals such as school education, college education, marriage etc. While planning for them, ensure that you determine the future value of these goals after factoring in inflation and calculate the amounts that will be required to be invested every month (keeping in mind the rate of return earned on investments).
Although it might seem early to start planning for these goals, remember that, the earlier you start, the lesser you will need to shell out of your pocket every month. Also, you will be able to accumulate the desired corpus in a systematic and stress-free manner.
- Invest the savings systematically
Apart from saving to meet your financial goals, investing in appropriate avenues is necessary. Mere saving is not enough! Chart your asset allocation in a systematic manner based on your risk profile. Remember that your risk taking ability will reduce once you near the fulfilment of financial goals and hence appropriate changes will need to be made in your asset allocation pattern in due time.
- Increase your insurance coverage
Beginning a family also means greater responsibility; more so when you are the only bread earner in your family. Hence you need to increase your insurance cover to an optimal level. Now, your life insurance cover must not only include your spouse's financial needs but also your child's future goals. This would be required in case an untoward incidence such as permanent disability or even death happening to you, because such events leave a detrimental impact on your family's financial wellbeing.
While insuring risk to life, pure term insurance plans are the best. But you need to calculate your Human Life Value rightly for optimal insurance. Remember to also take a personal accident policy as this will cover you from the loss of income in case you meet with an accident. This is a common policy for those who are employed as the policy partly covers you from the loss of income.
Health insurance is also extremely important if you don't want medical expenses to eat up your savings. An adequate amount of cover should be taken for the entire family, as these expenses can crop up anytime and unexpectedly. You may consider opting for a family floater plan after consulting with your financial planner, or even go for individual health insurance policies.
- Reduce unnecessary expenses
Now since the family will have additional expenditure, it would be prudent to reduce unnecessary expenses depending upon your income and financial assets. Today, it has been observed that large number of people start a family at a later stage of life - during their 30s or 40s. This leaves them with lesser number of earning years before they retire and more responsibilities to shoulder. Hence, in such a case it becomes vital to avoid pointless cash outflow, - which could be exotic vacations, dining at 5 star hotels, buying luxurious products and so on. A monthly budget should be made for expenses and everyone in the family must stick to it.
If you feel that meeting goals is going to become difficult even after reducing expenses, then it would be prudent to make your goals more realistic and / or finding additional sources of income.
- Undertake estate planning
Estate planning is something which must be done from the very first day you acquire an asset. This becomes even more imperative when you become a parent so that in case something unfortunate happens to you or your spouse, your assets can be easily transmitted in the name of your loved ones. If you wish to bequeath something in the name of your child who is yet a minor then make sure you appoint a guardian for the assets till the time the child reaches an adult age.
- Keep your retirement savings intact
Sometimes parents, for the sake of their children's needs such as education, marriage or even getting them settled in whatever way; break their retirement kitty. This often leads to harming their long term financial health. Funds kept aside for retirement should not be used as this would leave you helpless in the second innings of life.
If you do not have the time or expertise to make a plan, it would be prudent to hire the services of an experienced and qualified financial planner.
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