Long-term financial goals require a huge effort in terms of planning and execution. Any deviation in the execution of the financial plan can result in jeopardizing the financial goal. Especially if you have to achieve big financial goals like child’s education and retirement, you can’t afford to make mistakes. It’s important to make the right decision at right time to get your retirement and child’s education goals. How to do it?
Let’s find out some of the important points to effectively manage both financial goals.
Prioritise Your Goals
Child’s education and your retirement may not fall at the same time. Usually, there is a time difference of 10 to 20 years between the child’s education and your retirement goal. For example, your child may require financial support for higher education when you reach the age of around 40 to 50 years and usually, people choose to retire at the age of 60. Depending on when you are starting investing towards these goals, your effort would be required accordingly. Try to focus on both goals together instead of choosing anyone of them.
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Choose Separate Investment Assets
As both goals are scheduled at different stages in life, your investment pattern should also match the same. For example, you get more time for achieving the retirement goal so you can take a greater risk at the initial stage and try to earn a higher return on investment. On the other hand, child education comes earlier than retirement goals, so you can’t afford to stay invested in a high-risk asset for a longer period. By starting investment early, you can easily achieve both goals by putting a very little financial effort. On the other hand, you need to put in a huge effort if you start investing as you get closer and closer to your goals.
Always keep your investment separate for each goal. When starting investment at an early stage towards child education and retirement, you can invest in equity mutual funds consisting of a mix of small and large-cap equity schemes and debt funds, while strictly in sync with your risk appetite. As you get closer to achieving the child’s education goal, you can gradually secure the target corpus by parking it in low-risk asset classes. You can continue to invest in equity schemes which are targeted towards retirement goals till you get closer to retirement or your corpus is built before time.
What to do if you can’t meet both goals?
Despite all the efforts, still if you fail to achieve both financial goals, what are the options available to you?
Inflation and lower-than-expected return on investment are some of the key factors that can deter you from achieving your financial goals. If you fail to achieve the child’s education goal, you should shift your focus on arranging the fund through alternate methods such as taking an education loan or liquidating some of your unplanned investments. Later, you can repay the loan by reducing unnecessary expenses and downsizing some of your short-term goals like vacations, buying a new car, etc.
If you fail to achieve the retirement goal, get yourself ready to take tough steps. In such a situation you can’t take the risk. So, you can either extend the retirement age by a few years to build a sufficient corpus, or you can lower the post-retirement expenses so that you can manage the rest of your life with available corpus.
Adhil Shetty, CEO, Bankbazaar.com, says, “The earlier you start planning and saving for both retirement and your child’s education, the easier it will be to achieve both goals. Start saving for your child’s education as soon as possible, and don’t delay planning for your retirement. Determine how much money you need to save for your retirement and your child’s education and set realistic goals. Consider inflation and other factors that may impact the cost of education and retirement.”
Things to keep in mind
Start early if you want to achieve your big goals on time. Always set a realistic goal because setting a bigger goal than your actual financial capacity can force you to take a higher risk. It can waste your entire effort because you may lose the goal and the corpus.
You must review your financial planning and adjust your investments from time to time as per changes in your lifestyle and in sync with the change in your risk appetite. Remember, if you miss the child’s education goal, you can take an education loan and save the future of your child, but if you miss the retirement goal, you can’t take a loan or make an aggressive investment to financially support your retirement. So, make sure you don’t have to miss your goals; invest wisely and start your investments early.