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The tiny new member of your family is a bundle of joy. But a baby also brings along a whole new set of responsibilities. Compromising on the baby's well-being is not an option either. That means taking just as much care of your finances. But many new parents overlook the long-term financial issues. And that is a big mistake.
Here are the four biggest financial errors that young parents make:
- Freezing retirement savings: Your newborn becomes the centre of everyone's attention. All your important decisions, especially monetary ones, revolve around the little one. But do not forget to save for your future. Not saving for your retirement today might land you in a financial crisis. Depending on your child to support you through your old age is not a great idea. If nothing else, invest a lump sum amount in a Child Fixed Deposit for the long term. Then keep reinvesting the money as the investment matures.
- Shelving plans for higher education expenses: Your child is an infant now. His/her higher education might seem like a distant dream. But ask any parent: The years fly by before you realise it! Start planning early and you will never go wrong. Keep in mind the snowballing cost of education.
- As you strive to provide the infant with a happy life, ensure smooth-sailing for the future as well. Invest today to benefit from the power of compounding. If you start early, time can be your best friend. The interest on your investments would earn further interest. Over time, this would grow into a sizeable corpus.
- Overlooking emergency funding: A crisis can strike at the most unexpected times. You are more at risk when there is a baby to take care of. Even as you splurge on an expensive pram for your baby, put aside a little something in an FD.
- Do this from time to time and let it serve as your emergency fund. Should you choose to have a second child, the fund could even be a safety net during the new mommy's unpaid leave.
- Cutting back on life insurance: New parents tend to overlook life insurance. The baby's arrival increases your expenses considerably. But don't make the mistake of cutting back on life insurance. Rather, even if it stretches your finances, ensure that you have enough life insurance cover. Your spouse should not face hardship in raising the baby in your absence.
FDs can be a financial safeguard
Now that the baby has arrived, your expenses might be draining your bank account. Until you can get a handle on the expenses, try making periodic investments in an FD. Bajaj Finance allows FDs of as little as Rs.25,000 for tenors of one to five years. Young parents can benefit in three important ways:
- Guaranteed returns: FDs ensure a guaranteed return at a specified interest rate. Bajaj Finance currently offers FD Interest Rates of 7.85% (the rate goes up to 8.1% for senior citizens). The markets may rise and fall, but the fluctuations will not affect your return. If you plan well, you can support your child's higher education with the help of your FD investments. There is no need to take a loan.
- Help in emergency cash crunch situation: FDs are helpful when you have a cash crunch. Opt for interest pay-outs at regular intervals. This can add to your cash flows in times of financial strain. Besides, you could take a loan against your FD. Bajaj Finance allows you to borrow up to 75% of the deposit amount. The interest rate on the loan is reasonable-just 2% more than the fixed deposit interest rate.
- Flexible mode of payment: You can let your interest accumulate over the tenor. This is helpful if you want to save for future life goals, such as funding your child's higher education. You could also withdraw the interest at regular intervals.
- New parents devote all their energy to providing the best of things for their baby. But do not ignore saving for future goals. Start investing now to secure a hassle-free future for your child.