TomorrowMakers

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

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

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.

How I did it

Kunal and Nita
Software Professionals

We are a family of five, with two kids and my mother who takes care of the house. Nita and I are both software professionals. Initially, with the kids, we found our expenses spiralling and were not left with anything to save or plan for our future. 

We decided to classify each major… Read more

Vaishali Pednekar
Teacher

I believe life is too short to not to indulge in things that make you happy and I love myself some retail therapy. However, I found myself in a financial disarray a couple of years ago. Sometimes I was overspending and falling short on my bills, but mostly it was just poor planning.

I… Read more

Payal Singh
Media Professional

I have just started working as a journalist. Though as a newbie my salary is not a lot, I still make it a point to save. My parents are middle-class salaried people who have built a great life by saving small amounts for years. They have taught me the importance of saving. With the help of my… Read more

Mukesh Keswani
Businessman

I run my own fabric business. I have recently bought a house and a car. So I have large sums of money going into EMIs. This makes it even more important to have a tight hold on my finances. I have kept both EMIs on auto debit on the 10th and 25th of the month. This way it does not put undue… Read more

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