Four essentials of financial planning for first-time parents

Being a first-time parent is an exciting experience that is followed by a new set of responsibilities. At times, these responsibilities can be both exhilarating and exhausting. Most new parents prioritise planning for their child's daily needs, but it is also critical to begin planning the roadmap for securing their financial future.

According to a recent HSBC report, 55 per cent of Indian parents still provide financial support to their adult children. It is a highly placed statistic, making sound financial planning by parents critical at an early stage, which can greatly benefit their children in the long run by assisting them in achieving their milestones such as higher education, a better lifestyle, or investment in key assets, among others.

Here are four key financial planning essentials to help ease your future worries and foolproof your child's tomorrow:

Secured coverage with term insurance: Parents must ensure that they have adequate life insurance coverage in order to provide for their children as they grow older. A term life insurance policy is an excellent choice for this purpose. The term insurance policy will act as a backup plan, assisting your family in meeting their basic financial needs or liabilities if you are unable to do so.

Investing in new goals: Inflation can derail even the best-laid financial plans; therefore, you must invest in financial products that provide long-term returns that outperform inflation. To accomplish this, a strong yet flexible combination of investments and protection can assist you in getting started on the path to wealth creation for your child. Insurance companies provide a variety of plans, and if you want to build a corpus for your child, a combination of a Term Plan (for protection) and a Child Plan (for wealth creation) is an excellent choice to consider.

Plan for emergencies: Begin accumulating an emergency fund to cover your child's unforeseen needs and expenses. A well-structured financial plan is shock-proof because it includes a safety net for financial contingencies. Make a financial plan and figure out how much you can save each month. After considering an emergency fund, allocate the remainder to a good mix of insurance (life and health) and investments.

Prioritise retirement plans: Don't put off working on your retirement plan and start saving now to avoid being unable to support your child's dreams in the future. At the same time, keep track of your current and post-retirement lifestyle/aspirations. Chart out the future you want for your child. Highlight key milestones in their lives and begin earmarking amounts that they will require during that time. Remember to use a future expense calculator to figure out these numbers.

Many new parents make the mistake of not purchasing life insurance because the process can be overwhelming and stressful. The good news is that most life insurance companies have now digitised the entire process, making obtaining life insurance easier than ever. The birth of a child brings immense joy to the family; making adequate plans to secure their present and future in the face of life's uncertainties will make parenthood a truly rewarding experience.

(Rahul Talwar, Chief Marketing Officer, Max Life Insurance Co. Ltd)