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Birth of a child – how should your financial planning change?

Birth of a child – whether it is a boy or a girl – brings a lot of responsibilities on you as a parent. What are the financial changes that you should make to secure your child’s future? Here is a list.

The addition of a son or a daughter to your family is an occasion of tremendous joy. As the father or the mother of the kid, you would be overwhelmed with happiness.

But at the same time, you also know that a child brings on to you enormous additional financial responsibility.

So what are the things that you should do to secure your child’s financial future?

Re-examine your insurance needs

This is the very first thing you need to do.

Of course, you wouldn’t like to think about your death when your child is just born – but in the best interest of the child, you need to plan for the most unpleasant scenario.

The amount of life insurance that you buy depends totally on your dependents. The idea of life insurance is to make sure that your dependents enjoy the same quality of life even if you are not around.

With the addition of a child in your family, you have a person who is totally dependent on you, and would remain dependent on you for at least 15 to 18 years.

This definitely calls for an increase in your life insurance needs.

So, do increase your insurance cover. And increase your life insurance cover adequately – the amount should be such that it can take care of your child in case of your untimely death.

For maximum cover at the lowest price, go for term insurance. Please read “Term policy is the best policy” for more on this.

Do not fall for a “Child Plan” or a “Children’s policy”

Life insurance companies offer various plans that are supposedly tailored for parents of young children. These are often called “child plans” in order to attract parents.

Please do not fall for these plans – they essentially offer the same benefits as any other insurance plan, and usually have higher expenses / premiums.

The same results can be obtained at a lower cost by buying life insurance and investment products separately.

So, instead of the children’s plans, opt for a simple term insurance plan as explained above. For making investments, read on.

Create new goals and start saving towards them

You need to think about the future needs of the child.

Her college and post-graduate education, and her marriage are some of the important things that would need significant financial resources.

Apart from these, you might want to have something special for your child – like sending her abroad for her higher education.

Whatever be your plans, the bottomline is that you would need a lot of money for all this. And it is advisable to plan and save for it well in advance instead of scrambling for funds when the need arises.

The advantage of starting to save early is that you would need to save very small amounts even if you want to end up with a large amount. This is due to the power of compounding – over time, your small investments would grow into a large sum.

Please read “Start saving early and gain from Compounding – Early bird gets the worm” for more on this.

And please don’t save in a haphazard manner – have clear goals in mind so that you can aim to achieve them, and track your progress on the way.

Each major financial expenditure that you expect to incur on your child should be a goal, and you should save independently for each such goal.

Please read “Goal Based Investing” to master this excellent investment methodology.

Start investing in gold

We Indians are very big on gold. We buy gold like no one else in the entire world.

Even if you are not too fond of gold, you would invariably need gold for your child’s marriage – irrespective of whether you have a son or a daughter.

So just like starting to save early for the goals, start buying gold early on. This would help you buy it at a low average cost. (Please read “Cost Averaging” for more on this method)

Please do not buy jewellery – it is the worst form of investing in gold. Buy either gold coins, or better still, buy units of gold exchange traded funds (ETF).

Please check out the following articles for more details:

Or for all the above information (and more) in one place, download the e-book: “Investing in Gold: Everything you should know

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