Children Financial PlanningWealth Prime
What more joyous occasion can there be for a couple than the arrival of their child? After all, the birth of the newborn is one of the most important events and the turning point in one’s life. Besides the excitement of the new addition to the family, it brings maturity and responsibility to the parents.
In fact, the child becomes the center of the family and the child’s well-being becomes the family’s top-most priority. You as the head of the family, plan to raise your child in the right environment and facilities, involve him/her in activities of their interests like professional training for sports, dance etc., provide him higher education (college and PG programs), celebrate important occasions and milestones for your little one, and not to mention a grand wedding!
Not only that, as a parent, you also wish to build and leave behind a bigger corpus to ensure your child’s future is secured – unlike business moguls, such as Mark Zuckerberg who donated his fortunes to charity instead on the birth of his firstborn. You, on the other hand, want to provide nothing but the very best for your child. But in order to fulfill these desires, it is imperative that you follow the right approach towards planning your financial goals. You must keep in mind the various expenses like education, extracurricular activities (the fastest-growing predictable expenses) that you’ll incur in the coming years. Here’s what you should do:
While planning for your child’s needs, and future goals, it is wise to start early. You will thank the time period that you get later. If you start saving and invest early, it will give you a larger time horizon to meet your financial goals (such as a child’s education and marriage) and even build a bigger corpus. Also when you have the time in your side, it helps to nullify or normalize all market ups and downs, rallies and depressions, global events and economic fluctuations.
Children financial planning early can help you reap the benefits of compounding growth and low risks associated with long-term investing. Start with setting aside a certain sum of money per annum for our newborn Child. If you start in the same month as your child is born, you will always remember to add the next installment on every birthday! This could be the first step of early planning.
Increase the investment every year
Education costs have been on the rise off late and are only expected to grow further. Inflation can cause costs to spiral further. It’s vital to keep increasing the investment amount in order to be in line with the future goal. This is crucial as sudden changes or rise in the cost can throw you off guard and it is better to be prepared beforehand. Start with adding 10% more every year to your child’s investments. This way you will be in line with the rising cost of the future without feeling the dent in your finances.
Be brave in taking risks
One may live with the misconception that saving for the child or investing in safe instruments such as recurring or fixed deposits, PPF (public provident fund) or long-term deposits will suffice for his or her future. But here’s a thing savings or safe mediums aren’t enough to fulfil important goals like higher education or wedding. They don’t offer higher interest rates and don’t grow the same rate as inflation.
One should look forward to start investing in equity funds – the only asset class that grows 5% to 8% more than inflation. For a long-term goal of say over 10 years, look for an asset allocation with at least 70-80% in equity, depending on your risk appetite.
Monitor your investment
Achieving your child’s future goals means keeping a watchful eye on your investments and keeping them on track. One cannot simply invest and forget about the status of the fund. Since this is a long term investment of say at least 20 years, it’s wise to assess funds once a year whether the investment is still relevant and still has the potential to meet your goals and whether it has performed as well as its benchmark over the same period.
Increasing financial awareness is helping parents prioritise financial planning for their children. This ensures that their child grows up to experience the best of everything. So, start early, invest regularly, review your investments periodically, and that way you will meet the financial goals for your child’s future.
Wondering about your children financial planning? Reach out to us and we will help you in crafting a perfect financial plan for your child!