BEING a parent is a huge responsibility. It is a life-changing event that most newlywed couples look forward to. But this life transition does not only entail emotional willingness to move to this level. Building a family requires financial preparedness. The next thing you’ll know, a new life is entirely dependent on you. Expenses are tied with child-rearing so it is a must to assess yourself financially, if you are ready to become a parent.

Here are the top things that you need to do to be financially ready.

Create a budget plan and follow it — Once a child is born, the family’s monthly expenses will significantly increase. Some of the most common additional expenses in your monthly budget include baby’s milk and diapers, pediatric consults, vaccines, and salary for the house helper. These expenses are significant and may hamper your financial standing if you are not prepared.

Build an emergency fund — It is a financial cushion should an untoward incident such as unemployment or medical emergency happens. Set aside an amount equivalent to at least three months of your living expenses (Monthly budget x 3). This money should stay in cash or deposited as savings in a bank. It should never be placed in investments because when an emergency happens, cash is the king. This is a very important component of your financial plan especially when there is only one provider for the family.

Purchase or review your current life insurance coverage — Most people do not appreciate the value of life insurance, but responsible parents should be insured especially when the children are in their critical years. This means, they are too young and cannot work to provide for themselves. Without income protection, their lifestyle and financial standing will drastically change when the worst happens. As responsible parents, we do not want this to happen.

The correct time to buy insurance is when someone is financially dependent on you while the best time to buy it is when you are young and healthy. Money alone cannot buy you insurance, it needs to be backedup by a good health standing.

Insurance coverage varies with each individual. You need to consult a Financial Advisor to determine your coverage. But as a simple reference, your coverage can be computed as follows:

Insurance Coverage = Monthly share in the household expense x 120 months + Current Debt (if any)

For example, if your monthly share for the household expenses like food, rent, and utilities is P20,000 and you have a current debt of P200,000, your ideal coverage is P20,000 x 120 months + P200,000 = P2.6 million.

Education fund — As a parent, sending your kids to schools is one of your biggest responsibilities. According to the Commission on Higher Education, the tuition fee alone increases at a rate of 6.5 percent per year. For example, if your child is three years old today, and the tuition fee is currently at P70,000 per year, by the time your child enters college, the yearly tuition fee is about P180,000/year. Can you afford it? If not, why not plan for it as early as now?

Start investing as early as possible to give time for your money to grow. Yes, investing is the answer to education funding, and not saving in the banks. Why? Because, as mentioned, the yearly tuition fee increase is about 6.5 percent. How much is the biggest interest rate the bank could offer? For you to maximize your money’s potential, find an investment instrument that can beat the yearly tuition fee increase.

A proper education planning offers direction for your children, so plan it appropriately.

Retirement fund — Being a parent may sidetrack your focus and you may forget saving for yourself, especially in the first five years of parenthood where expense is at its maximum. Saving and investing for your own retirement is both caring for yourself and your kids. This reduces the possibility of your child supporting you financially later in life. This, itself, is a proof of your love to your children.