10 tips to be financially prepared for your child

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Updated: September 16, 2019 4:30:54 PM

Many parents start saving for their child in advance and think it is a lot but, will it be enough in the long run? The type of investment instrument you have chosen also plays a big role in the growth of the asset and beating inflation.

investment for child's future, child education, marriage, retirement planning, girl child, Sukanya Samriddhi Yojana, SSY, Life Insurance, Public Provident Fund, PPF, Unit-Linked Insurance Plan, ULIP, mutual fund, MF, where to invest for your sonIf you also want to be financially prepared for your child, here is how you should go about it:

When planning for the child’s financial expenses, most parents start planning with their child’s education, graduation and then post-graduation expenses. People miss taking into account the regular expenses that increase after the baby arrives, and hence, start struggling after the baby arrives. After the baby is born, additional child expenses such as healthcare for the child, the cost of hiring a nanny, and schooling, are some major expenses which are generally missed out.

Many parents also start saving for their child in advance and think it is a lot but, will it be enough in the long run? The type of investment instrument you have chosen also plays a big role in the growth of the asset and beating inflation.

If you also want to be financially prepared for your child, here is how you should go about it:

  1. Firstly, you need to find out one of the major expenses, the cost of education for your child, in present terms. Then while calculating their educational expenses, you need to consider inflation at 10 per cent. To help you with this type of inflation-based calculation, there are online calculators who do the math for you.
  2. While zeroing down on the final cost, you need to consider expenses such as, transportation for the child, coaching, cost of books, and not only just limit yourself with the course fees, as the additional coachings with school and college education turn out to be costlier than the course itself at times.
  3. Experts suggest, if parents are planning to send their child abroad, they need to plan for that separately and specifically. The type, of course, you are sending your child for also matters. For instance, courses relating to business and administrative studies are likely to be much cheaper as compared to engineering courses.
  4. Once you start to look at where and how to save, choosing the right investments is utmost important. Depending on your goals and what you are saving for, you should choose your investments. For instance, growth assets are an ideal option for long-term goals. Children education, marriage, retirement are considered as long-term financial goals and growth assets in these cases offer better returns.
  5. Undergrowth assets, investments such as shares, property, and alternative investments are considered as they have the potential to deliver higher returns over longer period of time, even though they carry a higher level of risks.
  6. Also, while choosing the investment option, choose it depending on the age of the child. For instance, an aggressive investment strategy will work well, if your goals more than 10 years away, under which you could give your investments exposure to mutual funds, Ulips, and the stock market. For this type of long-term goals according to experts, equity mutual funds work great as investment vehicles, where you can invest through monthly SIPs.
  7. For goals that need to be met within a shorter timeline, 2-3 years, short-term debt funds, bank FD can be considered.
  8. There are various child-specific plans available in the market, which you can opt for. These specific child plans come with dual benefits. They offer both insurance and investment opting in a single plan.
  9. Under the ULIP category, there are some plans with such dual benefits, with a 5-year lock-in period. These plans also offer tax benefit under section 80C.
  10. If you do not buy a child insurance plan, industry experts suggest getting a term insurance plan, which will protect all your investments in case of an unforeseen event.

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