You know, the one thing no one talks to you about when you're expecting is this: your bundle of joy could bring you a bundle of worries. Becoming a parent comes with extra responsibilities, lifestyle changes and, most importantly, a whole lot of new financial commitments.
Now, this sounds fairly commonsensical, but try and plan ahead. If you start preparing for parenthood two or three years in advance, there's nothing like it. This time will help you plan mentally, physically, and financially. But not to worry if you don't have so long—even the most unplanned pregnancies will usually give you at least eight months to prepare for the new arrival!
Understanding baby expense categories
Having a baby will bring with you expenses in different categories.
- Essential direct costs: These are the costs directly related to the child. They include, for instance, medical expenses related to the pregnancy and birth, postnatal expenses, baby essentials such as food, diapers, etc (next time you are in the supermarket, take a look at baby food and diaper brands— you'll be surprised by how expensive these can get.)
- Non-essential direct costs: These are the costs directly related to the child, but which can be reduced (or even avoided) depending on what kind of person you are. A lot of new parents go overboard buying toys, clothes, and baby accessories just out of sheer excitement. But try not to get too carried away. For one, your baby is going to outgrow his clothes before you can say peek-a-boo. Ask yourself if your baby really needs that state-of-the-art pram with seven types of functionalities, or will a simple, foldable one do? Think about who really cares about the themed bedroom with the matching curtains and wallpaper and bed linen—you or the baby? We aren't saying that you shouldn't indulge a little, but take a long and hard look to ensure you aren't going too far.
While planning, sit down with your partner and chart out a rough timeline to understand how much money you will need coming in at what point of time.
- Indirect costs: These are the costs you will incur as a result of your changed lifestyle. For instance, the loss of salary from a maternity leave, the additional cost of childcare help, or the cost of shifting to a new place, be it for better amenities or to move closer to your workplace or parents' home.
- Long-term costs: This includes everything that comes with raising a happy, healthy child: school fees, holidays, health-related expenses, and investments for his/her future.
You will notice that some of these costs are incurred in bulk at certain times and others recur over a period of time. While planning, sit down with your partner and chart out a rough timeline to understand how much money you will need coming in at what point of time.
Ways to cut costs without cutting corners
Are you open to hand-me-down toys and clothes in good condition from cousins and friends? This is an accepted and welcome practice in Japan, Europe and the US. But though we ourselves grew up using our cousins' things, we are often reluctant to do this for our kids. Honestly, there's nothing embarrassing about it—it's just a very practical, sensible way to think. This will help bring down expenses a great deal. Plus, as your baby grows, you will have a different set of relatives/friends to tap into!
Check with both sets of parents if they are willing to offer child support help. In which case, you could move in next to them or have them move in with you. This will get rid of a lot of emotional stress, make sense financially, and help you/your partner get back to work after parental leave sooner. And the truth is, literally no one will take care of your kid like a doting grandparent!
Planning your finances for the new arrival
First off, make sure you have a good health insurance plan that covers childcare and related expenses. The coverage you have from your employer may not always be sufficient, so make sure you understand the terms and buy/upgrade to a new policy if needed.
Putting money aside in a bank account, FD or RD will not really help you here as they will give you just about 4-5% returns.
Next, plan for a bigger monthly budget, taking into account the fact that you/your partner may not be able to get back to work for nearly a year. Putting money aside in a bank account, FD or RD will not really help you here as they will give you just about 4-5% returns. Instead you can get better returns and balance risk and safety by investing in good portfolios of balanced funds. There are various options available in the market depending on the balance between equity and debt that you might want to strike. This is a good strategy to take for a three–six-year investment horizon. Returns on all options on the link will have 100% tax exemption if you are invested for more than 1 year.
For some short-term goals like creating a corpus for school admissions or yearly family vacations, you can also invest in corporate bond funds. If you are invested for more than three years, you will get the benefit of indexation which can reduce your tax impact to 3–5%.
Lastly, don't think that you have a lot of time before you have to start worrying about your child's education. Set up financial goals on a good goal-based investing platform. The sooner you start, the less you'll have to spend and the more you'll have saved up. Our Kid's Education Fund Builder tool will help you plan how and where to invest. Try it—your child is going to thank you for it one day.
The opinions expressed in this post are the personal views of the author. They do not necessarily reflect the views of HuffPost India. Any omissions or errors are the author's and HuffPost India does not assume any liability or responsibility for them.