The arrival of a child into our family is a big occasion and
brings with it tons of new responsibilities and commitments. Most parents feel
that no specific planning is required to take care of their little bundle of joy.
However, the truth is, taking care of a child is a huge commitment and there
are tons of things parents need to take care of, once their child is born. The
purpose of this article is to highlight some of the important things that you should
remember to do…
To Do No. 1 – Review your Life Insurance Coverage
Up until a few months back, your parents and wife were your
only dependents. Now, an extra little one is also dependent on you. Yes, we all
plan to spend a long and happy life with our spouse and children. But, what if
something unexpected happens to us? Our spouse would have to take care of our
child all by themselves. Nothing can replace the presence of a parent but if
you can help ensure enough funds to support the present and future expenses
required bringing up a child, your spouse will at least not have to worry about
where to get funds to raise the child.
Think long term, medical expenditure, schooling and college
education are becoming costlier by the day. To top it all off, if you are
expecting a baby girl, you also need to consider marriage expenses. So, I would
recommend topping up your life insurance by at least 25 lakhs for a boy and 50
lakhs for a girl baby.
Note: This is just additional insurance coverage. To learn more about how much Insurance Coverage you need - Click Here
To Do No. 2 – Add Your Child to your Family Health Insurance
Many of us have Health Insurance policies that include
coverage for our family members also. Most policies have options to include
your new born into the family cover. All that is required is for the parents to
update the insurance company with the details of the baby and voila, he/she
will be included into the family’s health insurance policy.
Note: Many insurance companies can include your child into the
family health insurance policy at no additional cost. If you haven’t signed up
for health insurance yet, consider this aspect as well. However, just because
they are covering your kid for free doesn’t mean the policy is good. Compare the
pros and cons of the different health insurance policies and choose the one
that offers the best benefits for your family – even if it means you shelling
out a few extra rupees to include your child into the family policy.
To Do No. 3 – Start an SIP for your Childs Higher Education
You may be wondering why I am thinking about your kids
higher education now. There is a reason my friends.
If you have relatives whose kids are old enough to join
college, ask them how much the fees are these days. Lets say, the fees per year
today is 2.5 lakhs per year. Imagine how much it would be 20 years from now
when your kid is old enough to join college? It will be at least 3 or even 4 times
as much.
If you start an SIP for just Rs. 1000 per month in a good
equity mutual fund that can give you a nominal 12% rate of returns each year,
your investment will be worth almost 10 lakhs in 20 years. You would have
invested 2.4 lakhs in 20 years but return is 10 lakhs. 1000 rupees is not a big
amount but 10 lakhs is.
Equity Investments always come with a certain degree of risk
which is why I am suggesting you go long term here. 20 years is a very long
time period and equity investments have the potential to grow at a much higher
rate than just 12%.
Note: It is practically not possible that the same fund is
one of the top performers for 20 years. Once every 2-3 years, you would need to
review your funds performance and if required; switch to a different fund. When
you do so, remember to not “Spend” the maturity proceeds from the old
investment. This money is for your kids higher education.
To Do No. 4 – Start Inquiring about School Admission
Most top schools these days have a long waiting list and
parents sign-up into these lists almost immediately after their child is born. So,
better you start inquiring with the good schools near your place and if
required sign-up on their admissions list.
To Do No. 5 – Start a Recurring Deposit for your Child’s
School Fees
This is actually a neat little idea I learnt from my dad. He
used to start Recurring Deposits for a few hundred rupees each month in both my
name as well as my brothers name starting in January of each year. This way,
when it was time to pay the yearly fee for us, he would have sufficient funds
in February of the next year.
During my trip to India last week, I was talking to my
brother about his little girl who will be joining LKG this June. The Fees even
for kindergarden these days is exorbitant. Some of the top schools in Chennai
are charging upwards of over 1 lakh per year. Even if it is just a good/decent
school the fees is upwards of 30,000 rupees or more. Not to mention the initial
capitation fee, caution deposit or even donations these schools take from
parents to admit their children. You have 3 years to save up at least 2-3 lakhs
for this major expenditure. If you start a Recurring Deposit for Rs. 7,500 each
month you will have 3 lakhs at the end of 3 years.
You can continue this yearly RD Idea once your kid joins
school to save up for the yearly fee. Setting aside 5000 or 10000 rupees each
month may be difficult but setting aside 1 or 2 lakhs once a year will be even
harder. Isn’t it?
To Do No. 6 – Start a Savings Account in your Kids Name
In Indian Culture, it is customary that kids seek the
blessings of the elders in the family during special occasions and every time
they do that, they are given gifts including cash. You should park these gifts
into this account and accumulate it for your child’s future. This account will
also help you teach financial discipline for your children. I have written a
couple of articles about teaching children the value of money. It would be good
if you read them and teach the same to your kids.
Children and Pocket Money
To Do No. 7 – Do Not Buy any Childrens ULIP Plans
Yes, thats correct. I just asked you to Not Buy
any Childrens ULIP Plans. Before you think I am crazy, spare a few minutes to
read the next paragraph and then decide by yourself.
The moment you become prospective parents,
apart from the joy and happiness, a part of your mind will start worrying about
your kids future and how you will be able to give him/her the best possible
life. This worry will increase even more after your baby is born. This is the
perfect selling moment for insurance agents because if they use the words “This
will be best for your Child” or “This will accumulate to 25 lakhs or 50 lakhs
in 10 years” you will be easily persuaded to buy those products. Targeting your
emotions and using sentences like “Gift your child the best future” are just
promotional tactics and you should stay cautious when something like this
happens.
Though I am not entirely against ULIP Products,
I am very much against those that charge hefty fees. To make matters worse,
most of these children’s plans are often designed to exploit these kinds of emotions
experienced by parents and are projected/sold in such a way that they look
extremely attractive to new/prospective parents. To top it all off, these
products usually come bearing higher than usual fees and charges which are
often overlooked by excited parents who are investing under the belief that
this product will secure their kids future. These children’s plans are nothing
but traditional ULIP Products, rebundled with higher fees with fancy tag names
and pictures – that’s all.
If you are being sold a ULIP that is supposedly very good and is tempting you, dont decide immediately. Take your time. Compare the cost/fees with other similar products, search the internet about feedback on the product that you are considering and then Invest. I wrote an article titled "Read This Before you Buy a New ULIP Policy" in 2013. I would recommend you read it before you buy any ULIP For that matter.
