Planning for your second child- what to keep in mind?

TomorrowMakers ™

Planning for your second child- what to keep in mind?

04 November 2016
Do you believe you know everything about parenting because you already have one child? Here is why you may be wrong.
 
 

One is good but two is better—this adage certainly makes sense as far as planning a family is concerned. A sibling will be a great companion for your child’s life, make him/her more responsible, and enrich the lives of all the members of the family.

However, a second child will also mean additional expenses—short as well as long-term—that will require proper and careful financial planning. The following points will help you prepare for the financial implications of the new family member’s arrival.

  1. Get Maternity Cover

The waiting period of 2-4 years often deter couples from buying maternity health cover for their first child. However, you can always choose this option for your second child. Presuming a gap of 2-3 years between your children, including this rider in your health plan at the time of your first child will help you be prepared for the hospital expenses of your next child’s birth. 

Saving Rs. 30,000 towards hospital expenses will, if invested at 8% for 25 years, will grow into Rs. 2 lakhs. Imagine what a nice gift it will be when your second child turns 25?

Related: 5 things to know about maternity insurance in India

  1. Review Your Term Insurance Cover

Can your partner take care of existing liabilities and future commitments like your children’s schooling, higher education, marriage and other expenses even if you are no longer around? Review the coverage of your term plan and make sure the death benefit is adequate to secure your growing family’s future from all contingencies.   

  1. Increase your Investment Targets

You probably purchased a guaranteed income plan after your first child was born. Now that you are thinking about your second child, it’s time to take a look at your future needs and revise your investments accordingly.

You may have to provide for a bigger home, college education and marriage expenses for both your children even as you continue repaying your home loan and saving for your retirement.

Instead of blindly increasing the amount of investment, consider multiple options like ULIPs, SIPs in relatively safer options like balanced funds along with high-risk high-return small-cap funds

Related: Life Stages and Investment [Infographic]

  1. Relook your Monthly Budget

Apart from planning for higher education and marriage, you may also have to allocate money towards child care, health, schooling, tuitions, extracurricular activities, and general living expenses. You may also have to consider the financial impact of one parent quitting his/her job to take care of the two children.

Consider leading a less lavish lifestyle and cut down on unnecessary expenses like eating out frequently and expensive vacations to balance your monthly budget. Saving Rs. 5,000 extra per month and investing it at 8% for 25 years (a very conservative option considering long-term equity investments can easily fetch 13%-15%) will increase your corpus by close to Rs. 4.8 lakhs.

  1. Combine Tax Savings with Short-Term Investments

Consider options like tax-saving FD with a mandatory lock-in period of five years to reduce your tax liability and enjoy some compulsory savings. Investing Rs. 50,000 per year on your child’s first three birthdays will give you an assured return of Rs. 60,000-70,000 on your child’s 6th, 7th, and 8th birthday.

This is a great option to take care of unexpected expenses that may otherwise derail your financial strategy.

The retirement race

When you have a second child, it also means you are nearing your retirement deadline. By the time both your children begin earning, it may already be time for you to retire. So, when you start planning your finances before the arrival of the second child, also start allocating some funds for this phase of your life. It may seem like it is still years away, but time flies and before you know it will be time. Thus, make sure your financial plan factors in both your children as well as your retirement.

The bottom line

Use the experience gained with your first child to create the perfect financial strategy that will ensure both your children are assured of a safe and stable financial future that protected from all risks and contingencies.

 

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