Plan a child after you plan the money

Amnik Talwar, 33 years old, likes to stay prepared. Although Talwar and her husband M. Devicharan, 33-year-old automobile engineer, didn’t draw up a timeline to have a child, Talwar knew that she needed to be prepared. Talwar, who is a chartered accountant and has worked in the audit team of a bank, knew that she would go beyond the entitled maternity leave and take a longer sabbatical after having a child. For this to happen without much financial discomfort, Talwar estimated a corpus that’s at least 1 year of her salary. “I always wanted to be a very involved mother so I knew that the 3-month maternity won’t be enough for me. I always saw myself taking a year off and so I knew I needed a year’s salary,” she said. The paid maternity leave has since then been increased to 6 months. 

What helped Talwar was that she thought about this phase in her life early on and had chalked out an action plan. “We have been married for 7 years. We always knew we would have a child when both of us were ready and comfortable, but I was certain that I would take a year off. So from the very beginning I would put some money aside. Every month I kept putting money in fixed deposits and when we actually had a baby, I realised that I had reached my goal as well,” added Talwar. 

For Talwar, the need to keep money aside was dictated by two things: not disrupting their cash flows and to continue to remain financially independent even on a break. “I have always been financially independent and felt the need for my own money, hence for my own sanity, I preferred saving up for my time off work,” she added. 

She went back to work after about a year but soon bid adieu to the corporate sector for good. “I don’t want the fast-paced corporate life any longer and my savings ensure I can take my time to explore other options. I haven’t quit working but my financial buffer allows me to take my time to figure out what I want to do next,” Talwar said. 

Like her, it’s important to be financially prepared for one of the most important phases of one’s life. “One needs to carefully plan having a child even from a financial standpoint. Financial issues tend to pull us back to work and as a result we end up hating having to work. It’s important to think about a financial buffer because the sense of confidence one gets from financial freedom is unmatched,” said Shweta Jain, a certified financial planner and chief operating officer at International Money Matters Pvt. Ltd. 

The good news is that with a little bit of careful planning, you can be financially free to spend more time with your child. But you need to start saving and investing your money from the word go. We spoke to some financial planner to know how best to do this. Read on. 

Plan ahead

To start with, it is important to have some clarity about your plans. “Typically most people have children after 2-5 years of marriage and normally we see women on a sabbatical for about 2-3 years,” said Jain. “It helps to understand how many years one plans to be away from work and also take stock of how much you contribute to the household expenditure. You also need to understand that once the baby comes, your expenses will only go up. So you need to plan for that as well.

Also, if you don’t have health insurance that covers delivery costs, you need to keep some kitty aside for that as well,”she added. 

So what you need to understand about taking a sabbatical is the fact that while on the one hand you welcome a member in the family, you may also move from a double-income to single-income household. 

“A sabbatical to have a child is no different from someone taking a break from work, or quitting work altogether to become an entrepreneur. So one needs to figure out the duration of the break and expenses during those times,” added Deepali Sen, founder of Srujan Financial Advisers LLP. 

According to Lalitha Jayabalan, a Chennai-based CERTIFIED financial planner at MoneyVedam, you need to plan for this right from the beginning by cultivating financial discipline. “A working couple should divide the household expenses and contribute in proportion of their income. Make sure you put not more than 50% of your income in that kitty and learn to live within that. That way even when you move to becoming a single-income household, your cash flows will not have a major impact on you,”said Jayabalan. 

Where to invest?

Having a child can generally be slotted as a short- to medium-term goal. “Typically a time horizon of 3 years is considered short term, 3-7 years is medium term and anything over 7 years is long term,” added Sen. “For a short-term goal, we recommend putting money in ultra-short-term funds and liquid mutual funds with an option of SWP (systematic withdrawal plan), which will ensure regular income. We don’t recommend equity investments if you are sure you plan to have a child within 7 years. If your horizon is long term then you could look at putting at least 50% of your money in equities,” she added. 

Talwar, for instance tailored this monthly income through multiple fixed deposits that she bought. “I bought several fixed deposits and now each one of them mature almost every month. This gives me a regular income stream,” she added. 

Are you late?

There is absolutely no substitute for investing early, but not all is lost if you are late. “The paid maternity leave has gone up from 3 months to 6 months now. And your company needs to pay you the entire salary and not just the basic. This means you have 6 additional months to start saving,” added Jain. Factor that in and also any cash gifts you receive. “You can also shift long-term investments to short term by diverting the corpus to debt. Of course, if you invest early, you don’t have to touch your investments,” added Sen. But this can happen only if you invest in the first place. Having a child is one the most important phases in one’s life. But it is equally important to plan for it from a financial standpoint. Our advice is that you invest your money right from the time your start working and eventually when you get married increase your investments and earmark them for a sabbatical, should you want one.