A reader wants to know, “How do you prepare for parenthood financially?” — a discussion.
I admire this line of thinking. I would recommend every wannabe parent to ask themselves this question. Previous generations considered childbirth a gift and believed it should not be hampered by too much planning. Perhaps they are right, but there are bills to be paid, and we will have to pay them.
The arrival of a child will change your life. However, it should not change your lifestyle. Many parents tend to go overboard in buying toys and amenities for their children, and they forget a key aspect of living and parenting: frugality. Spend on what is necessary to the extent that you can afford it. Never give the child the impression the parents will buy them anything they want if they ask for it.
The expenses in the first couple of years would typically include diapers, infant formula, vaccinations and periodic visits to the doctor. These should be handled only from your joint salary.
Pre-school or school fees can be quite high depending on where you live (even within the same city). Find out right away how much this would be and start a recurring deposit for it such that it would mature around the right time.
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Ideally, you should be able to pay the recurring tuition fee from your salary (via annual RDs). If you cannot pull this off, you are probably seeking an expensive school, or you may need to delay parenthood for a year or two (this has health risks). So do not go by my advice alone. Parents and in-laws would typically scoff at this mindset and ask you to take the plunge and “manage along the way”. If you heed this advice, think about what “manage” means. Does it mean reducing your lifestyle or dependence on your parents or in-laws? The latter has to be avoided.
Ideally, you should have enough left to invest for your child’s college education and more for retirement. If there is a shortfall, make a cash flow table with your projected salary hike and determine when to continue investing for goals as usual. You can start a family if it is not too far away (say, > 5 years). Else, delaying is an option.
Please keep in mind that natural childbirth has a short time window. So, if you have the urge to start a family and are confident that you will “dekhlenge” (manage), go ahead. It is important to plan but also important to over-plan. However, it is crucial to ask these questions before the second child!