3 Reasons New Parents Must Have a Financial Plan

2024-08-02

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Being blessed with a child is one of the greatest feelings you can receive as a parent. The birth of your child is the happiest moment indeed. But with this happiness, you also need to start planning to provide a good future for the child.

Regular expenses like changes to your home, toys, clothes, walker, etc will flow out of the regular income. A part of your savings should also flow towards the child’s higher education and marriage goal.

Although a child’s goals are important, you cannot give up all the other existing and upcoming goals for them. Planning is the best way to ensure you can achieve most of your financial goals in life.

Thus, for a new parent couple financial planning is a serious matter. A good financial plan will help you with the following:

Increasing Savings
Investing more efficiently
Select better investment options
Safeguard your child’s goals
Save more tax while investing and withdrawing from investment

How to Plan as Parents of a Newborn?

Now that you know why planning is so important and what it can do, you must try it for your child’s goals. Here’s a simple three-step process to do just that:

1. Define your Goals

The first step of any plan is to ascertain what you will be planning for. What goal do you want to achieve with this plan? The purpose for which you are planning must be clear to you before anything.

A clear and concise goal will help you and your family a long way.

Follow the SMART goals rule to define your goals effectively.

SMART Goals for Financial Planning | How to do Financial Planning

2. Choose your Investments

You want the investment option for your child’s future to offer at least the following three benefits:

- Multiple investment options as per your risk appetite
- Safety feature for the goal in case of contingencies
- Tax saving and exempt growth

Here are a few investment options which offer all the above benefits:

a) Unit Linked Insurance Plans

ULIP is a diversified investment option with the safety of life insurance. Plans like Invest 4G from Canara HSBC Life Insurance offer advance investment and safety features:

i. Invest in a mix of equity and debt funds
ii. Use automated asset strategies to change your portfolio as per the market performance without intervention
iii. Safeguard your child’s goal with premium funding benefits. This benefit allows the investment in the policy to continue even after your untimely death. Thus, your child will receive the intended maturity benefit you wanted her to have.
iv. The policy allows partial withdrawals after 5 years of continuous investment
v. Claim deductions from your taxable income for up to Rs 1.5 lakhs every year for the invested amount.
vi. Partial withdrawals and maturity proceeds are tax-exempt if investment conditions are met

b) Guaranteed Savings Plan

Guaranteed Savings Plan offer guaranteed benefits upon maturity or death. Thus, this is the best option if you seek the guarantee that your child will have the financial support she needs, whether you are there or not.

Guaranteed Savings Plan from Canara HSBC Life Insurance offers the following benefits:

i. Guaranteed bonuses to enhance growth
ii. Tax-free investment and maturity values
iii. Safety of capital
iv. Premium funding benefit in case of early demise

3. Start Investing

After selecting your preferred mode of building the corpus for your child’s goals, you need to start investing. The best mode or frequency for you to invest would be as per the frequency of your income.

For example:

If you are salaried, go for a monthly mode of investment
If your income is irregular you can choose a half-yearly or yearly mode of investing

With these three simple steps, you can guarantee good financial support for your child’s dreams.

Boost your Savings with a Financial Plan

Proper planning helps enhance your savings. A major part of financial planning involves budgeting. This is the process through which you create your budget.

When you make a budget, you start to identify your current income and expenses. Doing this will help you to-

Take a note of all the expenses that you can reduce or cut off.
Maintain your expenses and curb overspending
Set yourself saving goals

The more you can limit your expenses, the more you will be able to save. Prioritising expenses gives you an edge with savings. Remember, today’s savings will be tomorrow’s wealth.

Click to use : Power of Compounding Calculator

Choose Better Investments

You need to invest your money for two simple reasons – 1. To safeguard it against inflation and 2. To have a little more in the future.

How much of these you can fulfil depends entirely on where you invest your savings. Where you invest your savings is a question your comprehensive financial plan must answer.

Your financial plan will provide you with different investment options based on:

- How much investment risk you are comfortable with?
- How long you can stay invested in a goal?

Based on these two you can have a number of options to allocate your money. Few examples:

a) Five years and above

i. Unit Linked Insurance Plans with a small portion in equity funds
ii. Equity-linked savings schemes together with debt mutual funds
iii. Public Provident Fund (PPF)
iv. Guaranteed Savings Plan

b) Less than five years

i. Debt mutual funds
ii. Bank and post office deposits

Safeguard your Child’s Future Goal

Ensuring the safety of important goals for your family is also the job of your financial plan. Comprehensive financial planning includes planning for contingencies. This is important for your family to continue maintaining their lifestyle and meet their goals even after a mishap.

A financial plan will help you set aside insurance policies and emergency funds to meet any contingency. For example:

- Increasing your term life cover upon childbirth is one way of ensuring a stable future for your child
- You can use child plans from life insurance companies to ensure a maturity value is provided to your child even after your demise
- Add funds to your emergency fund pool for child’s school and educational expenses

Make Tax-Efficient Investments

After inflation, taxes are the only thing that can affect the growth of your investments. That’s why financial planners would recommend using tax-saving investments to save for your long-term goals.

Some of the best tax-saving investments for your child’s future would be:

a) Child Education ULIP
b) ELSS mutual funds
c) Public Provident Fund (PPF)
d) Sukanya Sammridhi Yojana

Invest More Efficiently

A whole life financial planning will ensure you are investing for the most important life goals first. This is important, as new goals may come up every other day in your life. However, you should always have enough to provide for the ones that really matter.

For example, investing to replace your old car could be more important than investing to visit your dream country with your family. While both goals may coincide on the timeline, the cost of not replacing your car is higher than the cost of not visiting your dream destination for a year or two.

Financial planning helps you direct your scarce savings efficiently after prioritising your goals. So, your life continues unhindered by regular challenges.

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