Investment Planning for Children’s Future
20th Dec, 2012
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Every child is precious to their parents. Every parent wishes for their child to get the best possible education and other amenities. This can be achieved by planning your investments and savings systematically. There are various ways in which a parent can secure their child’s future.
It’s advisable to start saving and investing at an early age, ideally even before you have a child. The earlier you start the more benefits you get, like – long term capital gains, longer term horizon which reduces the risk and also results in a higher corpus.
Now you would wonder how much to invest, where to invest and also how much you should save from your income. To achieve the desired goal for your child you need to save and invest regularly.
Here are a few things which one may consider while planning for a child’s future:
Savings – Savings are crucial when it comes to financial planning, because without savings you cannot invest. Also, one needs to have sufficient funds for emergency purposes; this sum is generally 3 times your monthly salary. This emergency fund can be in form of cash in a savings bank account. Savings should start at a young age and should be imbibed in a person as a habit.
Insurance – No one can predict the future. As the future is uncertain, one should always hedge the risk by insuring oneself as well as their child. This is the part where you need to combine a child plan and a term plan (as a pure protection plan). A children’s plan is crucial, because with ever-increasing inflation, it is necessary to get a child plan which will help in systematic savings as well as financial growth. It is also necessary for the parent to get a term plan which will be helpful to the family in case either parent dies or is rendered unable to earn due to some unfortunate event.
Inflation should always be taken into consideration while planning for your child’s future. Inflation actually erodes your hard earned money. Let us take an example – an MBA today from a reputed management school would cost around Rs.5 lakh. Ten years down the line this amount could become Rs.10 lakh if we take a 7% hike in the fees every year. We have taken 7% as an assumption and a replica for inflation, because over the period of a decade, inflation tends to average at 7%.
Investing – While it is important to save, making your money grow is equally crucial. One needs to systematically invest money in various instruments like fixed deposits, mutual funds, and physical gold. Investments should be made only after defining the risk appetite. A risk-taking investor may even invest in direct equity while a risk-averse investor may invest in FDs and RDs or even postal savings scheme.
One can either hire a financial planner to make a proper plan for their child’s future or even do it on their own by consulting bank managers, insurance agents and mutual fund advisors.
To conclude, preparing for your children’s future is a simple process – reduce your expenses, increase your savings, invest properly and regularly and get insured early!
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