Becoming parents is one of the greatest joys in the world. However, it also brings with it an imperative need to secure the future of the child in the face of the many harsh realities and uncertainties of life. Here are some top tips that are worth considering and implementing.
Increased Risk Aversion
Now that there is an extra member in your family, your financial responsibilities increase by quite a bit, both by extent and duration, possibly extending even after your retirement. It is essential that you reduce your risk exposure of your investments. However, since the reduced risk will also reduce your returns, you will need to put aside a larger sum every month as savings. This extra demand will in most cases create a lot of stress in parents as they also need to bear the substantial expenses that are involved in child-rearing. Among the best ways of optimizing your risk-return is to invest in mutual funds rather than in stock markets directly. Even when investing in mutual funds, it might be worthwhile to focus on funds that invest in multi-cap and diversified portfolios rather than the ones that focus on small-cap companies that are invariably riskier. Access a debt review from a reliable source to find out the returns you can expect from a basket of diversified debt and equity mix.
Plan the Duration of Your Cover
With the birth of the child not only would you need to enhance the life insurance cover but also extend the duration of the cover. For example if have become a parent at the age of 40, you child would not have finished college when you retire so ideally you would need to purchase a cover that keeps you protected for 25 or 30 years from the time of your child’s birth. While earlier insurance companies were reluctant to cover people till this age, most insurance companies are now quite amenable due to the better life expectancy of the insured. The rates too are fairly reasonable and affordable by the middle class.
Get Adequate Medical Cover
Medical care costs the earth nowadays and you should be careful to remember to include your little one in your medical insurance policy. It makes sense to purchase additional coverage for the child even though your employer might have a generous cover provided for the entire family. The times are very dynamic and there is always the risk of economic depression leaving you jobless and cover-less all of a sudden. A sick child in hospital is no time to find out the grim realities of life.
Account for Small Expenses
Compared to the cost of bringing up your child, especially admission and the tuition or hostel fees in good schools, and that of higher education, it might seem laughable to keep track of the smaller expenses that are involved in child-rearing, such as birthday parties, gifts, picnics, stationery, sports kits, fancy dresses, and raffle tickets. Even a back-of-the-envelope estimate would reveal that expenses on these “minor” items would be quite substantial, especially when you take into account the return you could have obtained had you invested the same sum every month in a mutual fund!
Very few children are lucky nowadays to have doting grandparents to take care of them during the daytime when both parents may be hard at work. As a responsible parent you would need to ensure that the child is left with someone responsible at home or at a crèche that will accommodate him till one parent can collect him after office. This is one area where you simply cannot afford to compromise on the quality and security of care, so be prepared to shell out a hefty sum every month for this convenience.
Make Out a Will
Though considered extremely elementary in financial planning, most people do not bother about making out a will to ensure that the surviving child gets easy access to the assets of the parents upon their demise. Consult a lawyer and have a will professionally made up that protects the interest of your child and entrust its execution to a trusted relative. To avoid potential disputes ensure all family members know of the existence of the will and its provisions.
Author bio: Simon Coolidge works for a mutual fund. Passionate about personal finance, Simon writes extensively for an online debt review site.