Money Management Tips For New Parents During COVID-19

Becoming a new parent in the middle of a pandemic can pose its own challenges. The fear of losing your job or facing pay cuts only adds to the situation.

Any new parent knows they have to be extra careful when it comes their spending, saving and investment habits. If you're a new parent or a parent-to-be, you will find that it's wise to revise your financial plan when planning for the future. Here are some things to consider:

1. Keeping a check on your spending habits

Many people are having to learn to live on a budget because of salary cuts and job loss due to the pandemic. Millennials living paycheck to paycheck will find they have to cut back on their spending and that includes take outs, online shopping and that expensive cup of coffee. Cooking at home, on the other hand, can be surprisingly fun.

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2. Creating a monthly budget

Having a new member in the family will increase your monthly expenses, and with a baby those expenses are manifold. Food, medicines, diapers, clothes, baby care products, visits to the pediatrician are just some of the expenses you'll have to now start taking into consideration. Be careful not to take away from your investments and savings. It can well jeopardize your financial future.

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3. Pump up that emergency fund

Having an emergency fund is a must for everyone. It is a good practice to keep at least six months worth of expenses in an emergency fund. Here, we have detailed how you can create and/or tailor your emergency fund.

With the arrival of a baby your monthly expenses are bound to increase and, so, it's only wise to increase the amount that goes into your emergency fund as well. For instance, say before the baby was born your monthly expenses were Rs 40,000 a month and, accordingly, your emergency corpus was Rs 2.4 lakh for six months. After the baby is born, say your monthly expenses increase to Rs 50,000, then ideally your emergency corpus should be bumped upto Rs 3 lakh.

In case a working mother takes a sabbatical of over a year, it's recommended that you grow your emergency fund even more.

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4. Start investing in new goals

With the arrival of a baby you will have to invest in new goals that focus on the baby's future. Saving for, say, your child's school and college education is not something you should delay. One way to save money with better returns is by opting for fixed deposits where you are aware of the interest rate in advance. Once you know that, you will know the exact amount of money you need to invest to get the desired return at the end of the tenure.

Long term financial goals like higher education and their marriages are 17-20 years away. Hopefully the effects and ramifications of the pandemic and the lockdown will have gone away by then. But one still has to keep inflation in mind. Achieving these goals might be difficult because of that. You have to save according to what the education cost might be in the future with say 10% inflation rate in education and not what it currently is.

So you need to invest in financial instruments that can give inflation-beating returns over a long period.

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5. Increase your term life cover

Life insurance aims to take care of your familyĄ¯s financial needs when you are not there. In case you bought the cover before the child was born, you must have looked at your current expenses and liabilities to determine the optimal cover. With a baby, you will have to include your childĄ¯s education and marriage, etc. in your future financial goal. So the term life insurance coverage amount would also increase to ensure those expenses are taken care of in case you are not there.

6. Include your child in your health insurance plan

If you have corporate health insurance--that is if your health insurance is covered by your workplace--you need to additionally get a personal health policy. In the event you lose your job you could also end up losing your health insurance. So it is wise to get a personal health insurance policy.

Once a child is 90 days old, he/she is eligible for health insurance. You cannot buy a health insurance plan for a child, so you have to include his/her name in your health policy.

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In case you and your partner have individual policies, you should buy a floater health insurance policy that covers the entire family and include your childĄ¯s name in it.

With the pandemic, we are witnessing things that none of us have before and taking care of a child during this time can only seem tougher. Therefore, it is important to already start taking steps to ensure they have a secure future and a smooth life.