3 Financial Planning Tips for Your Child's Future
Written on Thursday, October 13, 2016
By Team Bajaj Capital
The attitude and concern for child's future planning come naturally to parents, but the money required for facilitating the plans like education in abroad, grand wedding, etc. doesn't come easy. To accumulate a big corpus for your child's future, you need to be really calculative, proactive and stay informed.
Are You Aware?
Thus, while saving for your child's future, you need to consider the future inflation and require being more strategic in managing your finances and investments.
Keep a Strategic Approach:
Irrespective of how big or small is your current earning capacity, you should have a separate saving plan for your child. Try being a disciplined and systematic investor, who invests regularly and at shorter interval.
Systematic Way of Managing Finances
If you think that you will start making investments for your child's future only after meeting your present needs, then perhaps investment will remain a distant dream for you. Because there is no end to our needs and there is a very thin line between primary expenses and luxury expenses. Most of us don't even realize when we cross that line and start making expanses that could be otherwise controlled. Thus, it's important to first invest on future security and family protection.
1. Start Investing Early for Power of compounding : You must start investing for your child's future from his/her very 1st birthday. This gives you the benefit of the power of compounding.
Let's understand the power of compounding with the following example.
Mr. Jai and Mr. Veru have daughters of same age. Mr. Jai started investing Rs. 4000 for his daughter's future, when she turned 1 year old. Mr. Veru started slightly late and started investing Rs. 7500 for his daughter when she turned 11 years.
Corpus amount when both the girls turned 23 years old :
Mr. Jai accumulates 29 Lacs more than Mr. Veru
Assumed Rate of Return is 12% and assumed inflation rate is 6%
Power of compounding is all about giving your money more time to grow. When you start investing early, even if you invest in small amounts, your money gets time to grow and thus yield you more benefits. But if you start investing late, then despite investing bigger amounts you will not be able to add much to your corpus only because your period of investment is short.
Keep Yourself Informed and Educated About Investments: For building a satisfactory corpus for your child, you have a variety of investment plans to choose from. There are risk-free investments like PPF, Fixed Deposits but these have low rate of return interest. Lucrative financial products such as mutual funds through SIP can earn you 15% rate of return or more but mutual funds are subject to market risks.
So, before investing, you must educate yourself about the risks and rewards of different financial products. Apart from these, there are various other important aspects that you must take into consideration, such as rate of return, inflation rate, tax-deduction, etc. Therefore, it is advisable to meet a Financial Planner.
Ensuring the security and safety of a child is perhaps the most sweetened responsibility for parents. Right financial advice can help you in making the right investment at the right time so that you can accumulate the desired corpus.