To plan for your child’s secure future – education, marriage, lifestyle etc., you have a galore of investment options today – mutual funds, Sukanya Samriddhi Yojana, child saving plan and so forth. But planning and investing in the right instrument is no child’s play. Simply investing in an ad-hoc manner may not help. You must identify suitable investment options at the right time so as to meet the financial goals for your child.
This guide will explain you how to wisely plan for your child’s future, right from the start.
1. Plan for Your Child’s Higher Education
Start with planning for the higher education of your child by identifying at least two or three good career options. It may be difficult to zero down career options, especially when your child is young. Still, select a few options for the planning purpose.
2. Find out the Target Year When You Will Require Funds
The next step is to find out the target year by when your child will need the funds for higher education. For instance, if your child is a year old then, s/he will enter the graduation year after 18 years. In simple words, if you are planning for engineering, the target age would be 18 years, whereas, for MBA after graduation, the target age would be 22 years.
3. Find Current and Future Education Cost
Based on education options selected, you need to find out the total cost of education for your child. This depends on various factors, for instance-
• Do you want your kid to have global exposure, or do you prefer your child to remain close to your place of residence?
• Do you want your child to do undergraduate or post-graduate courses or both?
Determine the overall cash flow in both cases. Suppose a management school charges Rs. 10 lakhs today and your child is likely to attend it in eight years from today, at 8 percent annual inflation, the fees would be around Rs. 18.5 lakhs. If the inflation rate is at 12 percent; you would end up paying even higher, i.e. Rs. 24.75 lakhs. Planning to build a corpus of almost Rs. 25 lakhs at one go may not be easy. So, be realistic and start planning early.
4. Discover the Amount to be Saved
Once you get an idea of the approximate cost of education, decide a monthly contribution required to achieve this goal. An easy way is to put aside some money towards this goal in a systematic manner. This will ensure that you don’t have to take loans, which can turn out to be a costly affair in the long run. If your savings are insufficient, it could pose a challenge, so try and reduce your household and personal expenses by doing away the unnecessary ones altogether. Also, remember that savings alone might not help you achieve your goals, you need to make smart investments as well because the inflation bug eats into your savings and erodes their value.