4 min read.Updated: 14 Oct 2021, 08:50 PM ISTAnagh Pal
The financial implications of childbirth should be carefully calibrated
The birth of your baby will undoubtedly be the biggest moment of your life. But a baby means added expenses and that can throw your financial life into a tizzy, if not planned ahead. Here is how to plan for the arrival of the bundle of joy in your lives.
Figure out maternity costs: “In general, the cost of medical and hospital bills is consistently on the rise and the same applies to maternity expenses too," says Rishad Manekia, founder and managing director, Kairos Capital, a Sebi-registered investment adviser (Sebi-RIA). A simple normal delivery can cost upward of ₹50,000 in local hospitals, while super-specialty hospitals can charge upward of ₹2 lakh. In case of a caesarean delivery, the cost can go as high as ₹4 lakh to ₹ 5 lakh in super-specialty hospitals. And these expenses can further escalate if any complications arise during childbirth.
Manekia says that though maternity expenses are now increasing, many insurance companies either do not cover maternity benefit or they cover it after a period of 3-4 years of policy issuance, or they put a cap on the expenses that they will pay. This is because most insurers do not associate maternity related expenses as an unforeseen expense. However, if you have a group policy or a health insurance policy provided by your employer, sometimes you may be able to get better coverage and you should check the terms of that policy to see if any benefits can be availed.
“So, before you plan for the baby, start keeping aside some money for expenses such as maternity and vaccinations—nowadays, there are many vaccines that you need to get for your child in the first 3-5 years of age—and so on," he adds.
Factor in increased expenses: You need to accept that having a child is a very big decision, which will demand your time and finances too and change your life forever. “That is why it is always wise to plan before having a baby, much better if before pregnancy. Couples should talk about how they are going to manage the finances," says Manikaran Singal, founder, goodmoneying.com and a Sebi-RIA.
“The financial implications of childbirth should be carefully calibrated," says Renu Maheshwari, chief executive officer and principal adviser, Finzscholarz Wealth Managers and a Sebi-RIA.
Questions like will the mother take a longish break, or the statutory maternity leave alone needs to be considered.
If the break is going to be a longer one, the couple should ensure that the husband’s salary is good enough to take care of all expenses, including mortgage payments. If the maternity leave is a shorter one, then there will be extra expenses of childcare/nanny service.
“If the family income comes down drastically due to parenthood, it is always better to take the help of a qualified financial planner to give a clear picture and what can be expected post childbirth," suggests Maheswari. Also, the mother can consider working from home or part time to compensate with some income if possible.
Since your emergency funds should be at least six months of monthly expenses, it needs to be accordingly enhanced as well.
Review your insurance: “Addition of one new family member definitely calls for a review of insurance," says Singal. Life insurance requirements will change, as now you need to add the cost of the child goals in your insurance cover. Plus, the increase in family expenses with childcare and further schooling cost will lead to recalculation of the need-based analysis of the insurance cover.
Singal advises not to take any emotional decision to increase the cover with child future insurance policies or any other investment linked policy. “This is the time you need to be concerned about the cover only and manage the cash flow situation. Once your cash flow is in your control, then think about how to plan for child-related goals and start saving. When it comes to health insurance, normally health insurance policies allow the addition of newborns after completing 90 days, so one may have to wait for the same. But once added, do increase your health cover by 30% at least. The same cover will not be sufficient enough," he adds.
Plan for the future: It would take a while, but once you have your money management under control and have a surplus, you should start planning for the future of your child. When you start early, you leverage the power of compounding and can have your money start working for you. For your child’s education, one of the best ways to get started is to consider the current education costs and then factor in inflation to see how much you need to save. “Choose the products wisely. Your long-term savings need long-term growth-oriented products. Never compromise growth over safety concerns. Take help of financial planners if you are not sure," says Singal.
No one can predict what the child might choose to study in future. “There should be regular monthly savings which must be invested in equity for long-term appreciation. Investing in equity for long term will yield amazing results," says Maheshwari.
If you have a daughter, you can also invest in the Sukanya Samriddhi Yojana, a government-backed savings scheme for the debt part of your portfolio to invest in her future. It offers an interest of 7.6% and you can invest up to ₹1.5 lakh every year and claim 80C deductions.
While it has a maturity period of 21 years, it can be used to meet the costs of higher education when your child turns 18. The interest accrued and the proceeds are also exempt from tax.
No cost is too much compared to how much happiness a child brings to a couple’s life. Planning ahead can ensure that the finances are well taken care of.