BENGALURU: After becoming parents, our one true goal is to look after our children in each and every stage of their lives. We often forget to plan ahead or sufficiently ahead for all the areas of a child’s life where financial readiness is important, according to scripbox.com.

Avoid Risks:

Since your financial responsibilities for the child will endure long after retirement,  you will have to reduce risks while saving and be content with lower returns. To compensate for the low returns, you will need to increase the quantum of savings. Usually such life events result in a drop in risk tolerance. This will have an impact on asset allocation. To reduce risk, consider taking the mutual fund route to the stock market.

Instead of riskier small-cap funds, it is better to go with large-cap funds. If you want better returns with a little higher risk, go for multi-cap funds.

Always Take Longer Cover:

You not only have to take a bigger cover but also with a longer tenure. People consider their own age while buying a term cover. You should consider your child's age. If your kid was born when you were 40, he or she would not even have finished college by the time you retire. Therefore, you will need a life cover till you are 65 or even 70 years of age.

The good news is that companies are now willing to extend term covers till this age. A 1 crore cover at 40 for the next 30 years will cost around 18,000 annually now.

Smaller Expenses That Add Up:

These are the things that sound like petty cash when compared to your child’s education but they can soon add up. Here comes those lost tiffin boxes and erasers, the birthday gifts for friends, the child’s own birthday party, etc. You must set aside a rough estimate in total for these which is 3-5K per month per child.

For those who think it’s not significant enough, here’s a simple calculation, 3,000 invested in equity mutual funds @14% equity returns for 20 years will give you nearly INR 40 lakhs at the end.

Paying For your Child Care:

If both parents are working, you might need to either appoint extra help at home for your child’s care till about the age of 8 or have the child go to a day care centre. This cost could range anywhere from 3,000 per month for day care to 8,000 for an extra maid to look after your child.

Life Is Not About Second Chances:

Your life insurance coverage will have to go up obviously because there is another human being dependent on you. This in turn is going to increase your premium. Also, you should get good health insurance coverage for your little one. If your employer provides a group insurance plan, make sure you top it up. All group insurance plans also offer reasonably priced top up plans.

Write A Will:

A lot of people miss out the last but essential step that completes financial planning. Write a will, stipulating a guardian for your child in case anything untoward happens to you and your spouse before the child attains majority. Identify a trusted relative, who can be made the executor of your will. Make your family aware of the provisions of the will to avoid possible disputes. Your child may be too young to deal with disputes.

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