These days, it is common especially in urban areas for people to marry late and have children much later in life. Starting a family late has its share of advantages and disadvantages. One of the benefits is that you are generally, in a better financial position and your career is mostly streamlined, in this phase of life. However, the flip side is you do not have too many years left for retirement, and there are many other financial commitments to take care of.
Here are financial tips for parents who start late:
- Cut down on expenses wherever possible. – Money saved, is money earned. You have may to make certain lifestyle modifications, when you are expanding your family. You do not have to live frugally but cutting down on frills, especially when you don’t use them, makes for good financial sense.
- Look out for a second career – There is a possibility that your child may not have turned 18 or may be still financially dependent on you. In the present-day scenario of job insecurity, it is prudent to have another job. So, you have to ensure that you have a significant financial kitty where you retire. Look out for part-time job opportunities that can provide an alternative source of income.
- Take a Term Cover – Once you have dependents, you should get a life insurance (term) cover. Do not just consider your age, but also your child’s age when you go for insurance. If you have a kid in your 40s, he or she may not have finished college, when you retire. So, take a life cover which can cover you till 65 or 70 years of age. Term insurance plans usually have low premiums, and they serve as pure insurance products, covering life and cannot be used for investment.
- Do not neglect health cover – As you grow older and wiser in life, you should remember neglect neither your health nor your health cover. A family floater hospitalization cover works great if you have a family, this can also cover your child from day. When you are 40 and above, keep the base cover as Rs. 10 lakh and include top-up health plans, which complement one’s primary health insurance and protects him or her from additional medical expenses.
- Invest in growth-oriented mutual funds – Despite what financial articles tell you, stay invested in high growth equity funds. Even if you have children in 40s, you still have time before you retire. If you do not require surplus money in the next five years, invest it in equity mutual funds. At the same time, everyone’s risk appetite and financial goals are different. Check with your financial planner or advisor about the right mix of investments, but it goes without question that the larger tilt must be in favor of equity.
- Make time-bound financial plans like children’s higher education, travel, starting a business or cause, retirement planning and invest long-term. Do not go for sectoral funds because they are too risky. You can choose from small and mid-caps, if you have an appetite for risk, to large caps if you want to play relatively safe. You can go for multi cap fund that are a mix of large caps, mid-caps and small caps, which contain risk as well as optimize market returns.
- Make a will – Most people do not even consider writing a will, deferring it to old age. The truth is that you do not need be old or sick to make a will. You can draft a will at any phase in life, no matter what your financial position is. If you do not make a will, succession laws pertaining to your religion kicks in after you die, and the property is divided depending on the conditions mentioned in these laws. You lose the right to ‘proactively’ decide what percentage of property or earned income should go to people you want to carry your legacy forward.