If your child was born when you were in your 40s, your finances will need a rejig

Starting a family calls for serious planning, but for those who have children in their late 30s or early 40s, the implications are different, especially where finances are concerned.After all, you are taking on major expenses at a time when your earning capacity is peaking and you do not have too many years left for retirement.

As older parents with young children, your financial plan will need a rejigging. Here are some smart money moves to secure your child’s future without jeopardising your own needs in your twilight years.

Save, save, save

You are not getting a promotion for becoming a parent late. So save aggressively. Don’t be too frugal, but cut down on frills. Gurgaon-based Satindra Sen, 51, and his wife Sohini Bhattacharya, 50, gave up their golf club membership when their daughter Jiya was born 10 years ago. “We switched to a `1.5 lakh membership club with a swimming pool,“ says Sen.

Cut down on costs even if it means major lifestyle modifications. Gurgaon based homemaker Archana, 40, and her financial consultant husband Ashish Khosla, 47, decided to cut down on foreign vacations when their daughter Anika was born three years ago. “We used to make two trips a year. Now it is once in two years,“ says Archana.

Cutting down too much on your lifestyle may have a negative emotional impact, so try smart tweaks. Sen has converted his large annual insurance premiums to more manageable monthly or quarterly ones. “The expense remains the same but if I pay a monthly insurance premium, the chances of spending the money on stupid things reduces,“ he says.

Avoid risks

While your financial responsibilities for the child will endure long after retirement, you will have to reduce risks while saving and be content with lower returns. To compensate for the low returns, you will need to increase the quantum of savings.

“Recheck risk tolerance levels. Usually such life events result in a drop in risk tolerance. This will have an impact on asset allocation,“ says Sumeet Vaid, Founder & CEO of Ffreedom Financial Planners. To reduce risk, consider taking the mutual fund route to the stock market. Instead of riskier small-cap funds, it is better to go with large-cap funds. If you want better returns with a little higher risk, go for multi-cap funds.

The need to cover risks is even more if you are the sole breadwinner. Yogesh Singh and his home-maker wife Shilpa have two daughters, Myra (6) and Adheera (2). He has enhanced his life insurance by `1 crore and also took an accident cover of `50 lakh.

Take longer cover

You not only have to take a bigger cover but also with a longer tenure. People consider their own age while buying a term cover. You should consider your child’s age. If your kid was born when you were 40, he or she would not even have finished college by the time you retire. Therefore, you will need a life cover till you are 65 or even 70 years.The good news is that companies are now willing to extend term covers till this age. A `1 crore cover at 40 for the next 30 years will cost around `18,000 annually now.

You may need to weed out some bad investments and channelise the premiums towards basic protection plans.“Surrender unnecessary life insurance policies that provide low cover and replace them with term plans. This will also help increase the annual surplus which can be redirected towards more productive investments or building a contingency fund,“ says Priya Sunder, Director, PeakAlpha Investments, a financial advisory firm.

Covering your health is also important. Buy a floater hospitalisation cover for the entire family. You can also have your child covered under this plan right from day one. You are 40 plus and the premiums will be high, especially if you have existing medical conditions.So keep the base cover at, say , `10 lakh and add to it a super top-up health plan.These have high deductibles and are, therefore, cheaper.

Think of a second career

Your child will still be dependent on you when you retire. This can make a significant difference to your finances and a second innings at work may be necessary . Even part-time employment can go a long way in balancing the household budget.

Write a will

A lot of people miss out the last but essential step that completes financial planning. Write a will, stipulating a guardian for your child in case anything untoward happens to you and your spouse before the child attains majority. Identify a trusted relative, who can be made the executor of your will. Make your family aware of the provisions of the will to avoid possible disputes. Your child may be too young to deal with disputes.

“Parents should appoint an executor, who can take care of the estate till the kid attains majority . If you have an advocate as a confidant, he can act as both--executor and temporary guardian. A relative or family friend can also be appointed,“ says Pramila M, Senior Advocate, Karnataka High Court.