Sunday, April 12, 2015

Things Parents Must Do – After Their Baby is Born

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. 

Hope you found this article useful.


Happy Parenting Folks!!!

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