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How to be financially prepared for a baby

Having a baby is one of the greatest joys in one’s life. 

But, of course, it is also an added responsibility. Unfortunately, however, very few among us are really prepared for this momentous change. As such, sometimes this joy and happiness can be short-lived... till we get the hang of the situation. 

Little bit of planning is all that is required to have a smooth transition into parenthood. 

Build a short-term fund
Having a baby not only involves certain pre-delivery, hospitalization and post-delivery medical expenses, but also buying a host of other items for the kid such as pram, sleeping-cot, dresses, toys, etc. 

Besides, if the would-be mother is working, it may also mean loss of income (depending on the maternity benefits / leave available). Say the employer provides 3-months maternity leave, whereas one needs to take about 6-months off after delivery. This would mean no income for the three months. 

Therefore, it is important to build an appropriate corpus to cover say about 1-year period starting from 6-months before the delivery to 6-months post-delivery, taking into account the expected medical/child’s expenses and the loss of income, if any. 

Check the adequacy of your life cover
Now that you have one more person dependent on you, your responsibilities & commitments have increased. Accordingly, your life cover should also be enhanced suitably so as to ensure that the protection level remains adequate enough.

Therefore, revisit your life insurance policies and check whether it is sufficient to cover your increased liabilities. If there is a shortfall, you must get the extra insurance cover.

As has been repeatedly advised, term policy is the simplest, cheapest and the most convenient insurance policy. Hence, take a term policy to bridge the gap in your life insurance cover.

Update your mediclaim policies 
Usually there is no problem when we have taken the policy on our own. The child’s name gets included in the same at the time of the renewal of the policy.

But many of us, who work in the corporate sector, are usually covered under the company's group medical policy. People generally tend to forget to get their child’s name included in the same. 

If you may recollect, you would have filled up a form giving details of your family members to be covered under it. Now, when you have a baby, you must give the updated details of your family to your company. Do not wait for your HR department to circulate the fresh form for updating the family details.

Review your monthly budget
New member in the family means new expenses – diapers, baby feeds, baby powders, pediatrician fees, etc. As you may have noticed, most of the child-related products are also comparatively quite expensive... companies know how to emotionally blackmail us. Further, when the mother goes back to work, there would be additional childcare/crèche expenses. 

Your monthly budget should, therefore, be suitably reworked to make room for higher expenses.

Start saving for Education/Marriage expenses
It is true that schooling, higher education and marriage are all still many years away. But it is also true that these require substantial money, given the high cost of education and marriage. 

Therefore, as it is said time & again, the earlier you start the better it is. Not only would you have to invest nominal amounts comparatively, but you would also benefit from compounding and long-term products like equity. 

In India, insurance and gold are the most common form of financial planning for the child’s education and marriage. However, both are sub-optimal options and hence avoidable. There are better and simpler investment products available such as PPF, MFs, etc., which will serve our purpose more effectively and efficiently.

As is the case with any big change, understanding it and planning for it would reduce the anxieties and make the baby’s activities a lot more enjoyable and everlasting.

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