Financial planning for those preparing to rock the cradle

As a continuation to our series on financial planning, we have brought you financial planning for Nuclear Family, Dinks, retired people and those planning to get married soon. Today, we bring you financial planning for those planning a baby soon. To know more, read on.

Your Life: Happily married? Next step, plan a baby. But with home and car EMIs to service, the pink toes can wait for a couple of years. But, what if the gift of God does not work as per your schedule and comes as a surprise. Planned or unplanned, a baby is an ecstasy, which soon gives a reality check of your finances.

Your Money

Funding Delivery Expenses: Ideally, you should start financial planning for a baby a year or two before you decide to have one. However, if it is a surprise, you will have to quickly rework your finances and budget accordingly. The first big expense comes as maternity expense for delivery of the baby. “Usually, if it’s the first delivery the girl’s parents foot the bill. This is done as a tradition amongst many communities,” said Karthik Jhaveri, a Mumbai-based Certified Financial Planner.

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[caption id=“attachment_526741” align=“alignleft” width=“380”]  If you have not started a separate kitty already for the baby expensesyou should start it immediately. AFP[/caption]

But, if you don’t have relatives to foot the bill, there’s always your employer. “Most employers offer maternity benefits as a part offer group insurance policy. It’s a good idea to find out about the cover and the amount of maternity benefits from your employer,” Jhaveri said.

If the wife is not working, the husband should find out about the maternity benefit offered by his employer. These days, the employer’s medical cover covers the spouse as well.

As far as insurance policies go, there are a few that do offer maternity benefits, but planners aren’t so fond of them. “A good hospitalisation facility these days will cost around Rs1 lakh. The maternity cover these policies offers is around Rs 20,000 to Rs 40,000. So, they don’t really make sense,” said Kiran Telang, another certified financial planner based out of Mumbai. Also keep in mind that when you buy a medical insurance, maternity benefit should not be the only reason to choose the policy. Also, many of these policies allow you to claim the benefits only after you have had the policy for three to four years.

Other expenses: If you have not started a separate kitty already for the baby expenses a year or two before the bundle of joy arrives, you should start it immediately, a day or two after you see the pregnancy test strip going blue. These funds could go towards expenses after delivery, right from endless vaccinations (this can even cost as much as R 2,500 per dose), to diapers (expensive again), nanny bills, and what not.

Gift Money: “Babies get a good amount of cash as gift (on the occasion of naming ceremony and the like). Buying gold with this money is not recommended. Instead, you should open a public provident fund account for the baby,” said Telang. Of course, which parent doesn’t want some gold on his baby’s body. So, go ahead and buy some token gold, but do invest the rest in PPF. You can open a PPF account in the baby’s name.

Small income: While the mother’s world will revolve around the baby, you should not forget the mother’s needs. “If possible, keeping aside a small corpus in some debt instruments, for the mother to be used after delivery, is a good idea,” said Telang. This would especially help if the mother is a working woman who’s taken a temporary break from work to be with the baby. This will ensure she continues to get a small income even as she nurses the baby and stays at home for a year or so.

For future: We won’t really tell you the exact amount you need to invest for your child’s future. It will really depend on your financial status, your ambition for him or her, his or her ambition and the like. Take for instance, a regular MBA today costs Rs3-4 lakh, but an MBA from a premium college would cost Rs 20 lakh. So, do get yourself a planner to find out the amount you need to save and how to invest. Ideally, it’s should a good mixture on debt-balanced- equity oriented mutual funds.

It begins with a Rs 50 pregnancy test kit and then it’s a never ending journey, through delivery cost, cradles cost, diapers, pre-school fees, school fees, art classes, football classes, smart phone, laptops to convocations and marriage expenses. Planning for a baby is more complex than planning a baby.