Love means providing emotional security, physical security and financial security. Parents try to do their best by working hard, looking after the varied needs of the children and often sacrifice their own desires to save enough to provide the best to the children. A well thought out financial plan for current and future needs of the children goes a long way in taking away from our mind financial issues like facing emergencies, paying for higher education, marriage, debt etc.
Financial planning for children involves short term planning as well as long term planning.
The Short Term Requirements:
Short term financial requirements are those which have to be incurred on a regular daily, monthly or annual basis. These requirements need proper budgeting to fit in the monthly household and other requirements according to one’s average monthly income and a certain decent saving. Some important short term expenses to be considered are pointed out below.
• Expenses during pregnancy- Medical expenses during pregnancy like medicines, delivery, hospital charges should be calculated and included in the budget.
• Needs of the new born- The baby will need some regular visits to the doctor for vaccines. A whole new set of clothes, accessories, baby food as well as the expenses of the nanny need to be added to the monthly budget.
• Pre-school- Reputed play schools charge a good amount as admission fee and monthly fees.
• Admission to main school- Admission fee to almost any school these days is above Rs. 60,000/-. School expenses. The Annual fee charge at the beginning of every session is usually a big amount, apart from the regular monthly tuition fee and other charges levied by the school. Added to this are other expenses like uniforms, stationary, books and transport.
• Medical requirements- Young children may fall sick often or hurt themselves while playing, requiring different types of medical attention in the form of visits to the doctor and medicines.
• Tuition and extra-curricular activities- These again involve the fees, stationary and transport. You may also have to buy things to facilitate the child’s hobbies, like buying musical instruments, sports kit, computer, related books etc.
Long Term Goals
To protect oneself from mental stress due to lack of finances and the need for taking heavy loans when required, parents have to insure themselves for the future. There are certain essential expenses of the future which require a big amount of money which many salaried people may find difficult to cash out at once. These expenses therefore require long term financial planning. The major future expenses are:
• Higher education, which includes professional degrees, study abroad and any other educational needs in a specialized area. According to a study inflation in education sector is jumping at a rate of 16%, much higher than the general inflation of 6-8%. So what is Rs. 1L today will be around Rs. 6L, ten years from now.
• Health and medical requirements which can arise anytime.
• Buying property, if you want to invest for the child specifically, when she or he becomes an adult.
Long term financial planning involves saving and investing in schemes that mature and give return in future around the time when it is actually required. When a child is born, parents can invest in schemes which mature when the child is say 18 years old for higher education, or around 23/25 years age when she might marry. Calculate the expected expenses to be incurred after 10, 15 or 20 years from the time of starting the investment. Calculate the amount of money you can save from your income for child specific investments after meeting other household expenses and your and your spouse’s future needs. Take into account the expected rise in income too.
Types of Investments
1. Bank Saving accounts and fixed deposits- Maintain a separate savings account where you intend to put in money regularly to be used only for the child’s needs. You can also use this money to buy equities, insurance etc. which require lumpsum, one time payments.
2. PPF- By investing small fixed amount every month in the PPF account, you get a good return in the future because PPF earns compound interest. PPF is safe because of the direct guarantee of the Government of India and it also provides tax benefits. It also has the facility of loan or partial withdrawal after a certain period.
3. Insurance- Insurance gives the assurance of giving money after a certain fixed period or whenever the need arises as per the conditions of the insurance we have invested in. Parents can invest in Life insurance, health insurance, education insurance.
4. Mutual Funds, equities and shares- If you have knowledge about the way equity and share markets work and you are not averse to risk taking, you can invest in these too. Though it involves risk, but the returns from these instruments are quite attractive.
5. Investing in gold and durable property.
Most types of investments require financial discipline as you have to essentially set aside a certain amount to pay the premiums regularly. But then no sacrifice is a big sacrifice when it is for the happiness of our precious dear ones!