Are you financially prepared for your child’s future? Here’s how to do it

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Published: January 3, 2019 1:33:29 PM

Think you are saving enough for your child's future, but will it be enough then? Find out how well you are prepared, and the shortcomings you need to fill

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Most couples start planning for their child’s education but do not account for an increase in regular expenses after the baby arrives. Additional expenses such as the costs of hiring a nanny, schooling, and healthcare are missed out. You might be saving a lot today for the long run, but will it be enough then? For instance, have you invested in growth asset or have factored in inflation?

Find out how well you are prepared, and the shortcomings you need to fill;

What will you need?

To start with, you need to establish in present terms the cost of education for your child. Then you need to consider inflation, say, at 10 per cent while calculating their education expenses. You can also take the help of online calculators available for these.

To come up with the final cost, expenses such as coaching, transportation, and cost of books, along with the course fees, need to be considered. It is also quite commonly seen now in various educational courses, the additional coachings turn out to be costlier than the course itself.

Also if you are planning to send your child abroad, you need to plan for that specifically. The type of course also matters. For instance, an engineering course might be expensive than business and administrative studies.

Where should you invest?

After you have identified how much you need, you can then start looking at how to save monthly to achieve this goal. Your choice of investments should be based on what your goals are and what are you saving for. Experts, however, suggest for long-term goals, growth assets should be opted for. Long-term financial goals such as children education, child marriage, retirement growth assets are expected to offer better returns. Investments such as property, shares, and alternative investments are included in growth assets. As these assets carry higher levels of risk, they also have the potential to deliver higher returns over a longer period of time.

Keep in mind that the investment option should be chosen depending on the age of the child. You can opt for an aggressive investment strategy if your goals are more than 10 years away. You should give your investments exposure to the stock market, mutual funds, and ULIPs. However, for goals that need to be met within 3 years, options such as bank FD, short-term debt funds can be opted for. Equity mutual funds are great investment vehicles for this type of goals as they work best in the long term. You can start with investing through monthly SIPs. You can either opt for hybrid funds for this goal or invest in large-cap funds which provide a good return on investment in the long run.

You can also look at the specific child plans that come with dual benefits of both insurance and investment. Some of these plans are also available in the ULIP category. These plans have a 5-year lock-in period and even come with the added tax benefit of 80C. However, if you do not opt for a child insurance plan, choosing a term plan is crucial as this will safeguard all your investments and your family’s future.

There is not only the need to start early but also choosing the right investment products for your goals.

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