Accomplish Your Child’s Future Needs With Financial Planning   May 02, 2018

Child’s Future

What are the common things most people want to give their children?

An education, a decent lifestyle, and the ‘great Indian’ wedding…

And you might not be an exception, but having high aspirations isn’t enough.

Nothing is possible without proper planning.

Here’s perspective — even God plans!

Do you think you can quit your job today, park all the money you have in a savings bank account, and still continue with your same lifestyle forever?

Perhaps, only then you don’t need to plan for your life goals.

This is the key — what are your life goals?

Once you’ve decided that, start planning ASAP (As Soon As Possible).

Here’s why, the cost of everything we purchase to sustain our lifestyle will appreciate, thanks to inflation. And, the cost of education is rising faster than the increments most people earn.

If you want to send your children to Ivy League universities abroad for higher studies, you need to start preparing for it when they begin their level-1 studies.

If you want to fulfil every reasonable demand of your child, you need to have a flexible budget.

And you should not pile up debt for a grand ceremony.

Consider this example:

Mr Shah has a 3-year-old son, who is going to graduate in 15 years. Mr Shah wants his son to pursue engineering. If the cost of graduation in today's terms is Rs 5 lakh, then let’s ascertain how much is Mr Shah going to need to send his son to an engineering college after 15 years?

Son's Age 3 years
Cost of Education in today's terms Rs 5 lakh
Time left for Graduation 15 years
Inflation Rate 10% p.a.
Cost at time of Graduation course Rs 20.88 lakh
Amount Mr Shah needs to invest per month Rs 4,180

You see, as seen in the table above, the cost of education after 15 years will rise to Rs 20.88 lakh due to inflation. And thus to fulfil this goal, Mr Shah will have to invest Rs 4,180 per month, assuming he earns a return of 12% per annum.

However, if Mr Shah delays this investment, and starts to save for his son's education after 5 years from now, then he would need to invest more than double, i.e. Rs 9,079 per month.

Consider one more case:

Mrs Gupta has a daughter aged 2 years. She wants to create a marriage corpus that should be ready for her daughter in 22 years. Currently, Mrs Gupta imagines that she would spend Rs 15 lakh for the wedding celebration if it were happening today. So, let's ascertain how much she needs to save for her daughter's marriage every month to get her married after 22 years?

Daughter's Age 2 years
Cost of Marriage today Rs 15 lakh
Time left for Marriage 22 years
Inflation rate 10% p.a.
Cost at time of marriage Rs 1.22 Crore
Amount Mrs Gupta needs to invest per month Rs 9,516

You see, considering the inflation, the corpus Mrs Gupta would require for her daughter's marriage in 22 years will rise to Rs 1.22 crore. And to achieve this financial goal, she will be required to make investments worth Rs 9,516 every month, which can fetch a return of 12% per annum.

However, if Mrs Gupta delays this investment, and starts to invest for her daughter's marriage after 5 years from now, she would need to invest almost double, i.e. Rs 18,464 per month. Hence you see, the earlier you start investing, the less you'll need to invest each month to achieve the same amount of money at the end of the goal.

What should be your approach to make all this happen?

Please understand, as in the case with all disciplines, financial planning is a science, not just an art. And, expert advice is your best bet for better results.

Steps involved in planning are:

Step 1—Estimate the amount you might spend today to fulfil your goal

Step 2—Decide the time horizon

Step 3—Consider the impact of inflation

Step 4—Consider your current financial circumstances and portfolio value dedicated to a specific goal

Step 5—Consider your risk appetite

Step 6—Determine the right asset allocation

Step 7—Invest regularly. You may opt for Systematic Investment Plans (SIPs) to invest in equity-oriented mutual funds

Step 8—Rebalance your portfolio wisely.

And please don’t forget, insurance planning plays an important role in the planning process. The future of your children shouldn’t be contingent on anything. Hence, preparation must begin ASAP!

To know the appropriate amount of insurance cover you should have, you may use the Human Value Calculator (HLV) calculator provided by PersonalFN.

Want PersonalFN to help you accomplish your goal of planning for your child’s education and marriage needs?


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 PersonalFN is a SEBI registered investment advisory. We simplify the path of wealth creation.

Author: PersonalFN Content & Research Team

Add Comments

Jun 27, 2018

Dear sir I am an employee in sbi. My age is 35 take home pay is 40000 pm. I have 3 sons.I didn't have any insurance policy till now. My wife is home maker. Is it better to take home loan or to save in any mutual funds for purchasing home in future? I dont know how to plan my budget for all my needs like children education, home,health etc... Can you please guide me if possible? Regards..