- January 2, 2018
- Category: Financial Planning
‘Two are better than one…for if they fall, one will lift up the other’
This cannot be more apt but for siblings who can be great companions for life. In this age of nuclear and short families, couples while envisioning the future of their only child, do contemplate having a second child as they would take care of each other after them. Some also get unexpected surprises. While a second baby, expected or unexpected is always welcome, it also means adding up to expenses. While one can never be really mentally prepared to raise a child, a little bit of financial preparation goes a long way in alleviating the monetary pressure at least and knowing what to expect next. Here is how you can be prepared:
Know your current budget
Firstly, understanding your current budget is the best way to know how prepared you are for the second baby. Evaluating your present budget will enable you to gauge how much room you can make for additional expenses associated with the baby. The costs would be more in the initial years including maternity costs, regular vaccination costs, daily care items, etc. The good thing is that some costs may not be recurring for the second child. Unless there is not a very big age gap, some baby gear (crib, pram, car seat, etc), toys, clothes, furniture, diaper bags, bottles, blankets, etc, can be reused for the second baby, provided they are in good condition. Since you already have the experience of raising a new born, you have an idea about how much to spend on daily care baby items and the various bulk deals and discount offers available on them from time to time. Ensure to explore them to add up on savings.
Factor in loss of income
Managing two kids and their schedules can often become very tough especially for working women. And, in the absence of a good support system, women are forced to take a sabbatical after a second child, which could actually stretch into many years. Some may also have to compromise on pay after a long hiatus. This has an impact on the total income of the family. You and your working spouse need to at least have a discussion beforehand as to how you would handle finances with reduced income and increased costs with the addition of a member in the family. Your spouse can also choose to opt for part time flexi jobs from home like freelancing. This way she can supplement income by working from home and managing kids as well.
As a major earning member while your spouse takes a backseat for a while, you need to cover the future of your growing family. Your financial responsibilities will rise as you would have to additionally plan for your new born’s living expenses and educational goal. It would be thus essential to upgrade your existing life insurance. Also, add your new born’s name in your family floater health policy.
Increase investment targets gradually
With increased costs, channelizing limited savings towards various goals becomes challenging. You will have to reprioritise your financial goals now. Any aspirational goal like buying a car or second house for investment or home renovation would have to take a backseat. You will need to start investing for your new born’s education goal. You can start with small sums and then gradually increase the contribution every year. Ensure that your elder child’s goals are not compromised. More importantly, continue your investments in the retirement fund. If you are having a second baby in your late 30s, chances are by the time you retire, your financial responsibilities will not be over until your child completes higher education and then takes time to settle in career. So, it is imperative that you take your retirement goal seriously no matter what. For all these essential goals, you can gradually bridge the gap with increased income and savings over the years.
Borrow if affordable to repay
You may feel the pinch while balancing your budget and reprioritising your financial goals, especially the aspirational ones. However, resist the temptation to borrow if possible to fund your leisure activities. Generally home budget, EMI servicing ability, etc are planned assuming double income. But now if you are contemplating to buy a larger living space for a bigger family, think of the cost of the higher mortgage and the added costs of furnishing the new house based on single income. If you contemplate to borrow, get a loan to the extent you have the capacity to service the EMIs and repay the money.
To conclude, planning financially for your second child will go a long way in easing the financial burden and make you better prepared to experience parenthood for the second time.