Planning for your child's future

Becoming a parent can be a life changing moment for most people. All of a sudden, you have a little person depending on you for - well - everything. You are your child's whole world, for the initial few years, at least. And it can be both immensely satisfying as well as immensely daunting to care for a little one.

As a parent, you may also inadvertently start to nourish dreams and hopes for your child's future long before you're even aware of it. Like their first birthday party. Or their first day in school. The many vacations you want to take your child on. Or even the college that you wish they'd enroll in.

What if we told you there's a way to make all these dreams come true? Yes, you read that right. All you need is a solid financial plan. One that allows you to save up for every major and minor milestone in your child's life.

Here are 5 key tips to help you plan for your child's future.

When your child is still very young, perhaps until they head off to primary school, it may seem absurd to start saving up for their future. After all, at this point, your child's future may seem a long way off. However, it is best to start investing as early as you can, so you can allow your investments to grow as much as they need to.

Starting sooner also allows you to invest in high-risk-high-reward assets like direct equity and real estate. This luxury may be unavailable to you if you get around to investing when your child is older, because you may be short on time by then. And that would make you more conservative in your investment approach.

Plus, you get to tap into the power compounding, which always works wonders in the long run. Here are 2 scenarios to show you how starting early can really benefit your child's future.

Scenario 1:
You start investing for your child's future right from the time they are born. And you plan to keep these investments going until their 20th birthday. So, let's say these are the particulars of your investments.

• You invest Rs. 10,000 monthly.


• You invest for a period of 20 years.


• The expected rate of return is 10% per annum.

In this case, at the end of 20 years, when your child is 20 years of age, your initial investments of Rs. 24 lakhs would have grown to Rs. 76.57 lakhs.

Scenario 2:

Now, let's say you wait until your child is 5 years old to start investing in their future. And you plan to keep these investments going until their 20th birthday. After all, what difference could a delay of 5 years make, right? Anyway, to compensate for the delay, you decide to invest a higher amount each month, as follows.

• You invest Rs. 15,000 monthly.


• You invest for a period of 15 years.


• The expected rate of return is 10% per annum.

In this case, at the end of 15 years, when your child is 20 years of age, your initial investments of Rs. 27 lakhs would have grown to just Rs. 62.69 lakhs. That is Rs. 13.88 lakhs less than the previous scenario!

See how despite investing more money, starting later could adversely impact the way your money grows?

Investing early is important. But so is investing right. And the best way to save up for your child's future is to choose investments that are aligned with the many milestones in your child's life. Of these, there are two milestones that most parents prioritize - the child's education and the child's wedding. Here's how you can plan well for these goals.

Your child's education

Have a basic idea of the amount of money you will have to spend for your child's education. Look up the fees for various courses and arrive at a ballpark figure for how much money you will need to have in place.

Account for inflation, because a course that costs Rs. 20 lakhs today could cost around Rs. 48 lakhs after 15 years, based on a 6% inflation rate. If you use the costs as they are today, you would only be half-prepared.

You also need to account for the ancillary expenses that come with your child's education, like the cost of travel and the cost of staying in a different place, if they plan to study in an institution that is located in another city or country.

Your child's wedding

While you may not be able to determine the exact amount you need to save for your child's wedding, it helps to have a rough idea of the kind of wedding they may have in the future. Factor in the costs accordingly and arrive at a ballpark number.

And much like your child's education, their wedding is also not immune to inflation. So, account for inflation and determine how much you need to save up for your child's big day. This can help you create an investment plan for their wedding.

As hard as it may sound, an important part of financial planning is accounting for uncertainties. And when it comes to your child's future, it is vital to secure their finances and plan for an eventuality where you may not be around. In other words, you need to ensure that even if something untoward were to happen to you, your spouse, or both of you, your child's future is not adversely impacted.

Life insurance can help you here. You can make use of different kinds of life insurance to secure the many aspects of your child's future. For basic financial protection that accounts for life's uncertainties, you can buy a term insurance plan like the ABSLI DigiShield Plan.

On the other hand, if you want to enjoy the benefits of a life cover plus a savings component that covers all your major life goals, a savings plan like the ABSLI Guaranteed Milestone Plan can help.

There are also life insurance plans like the ABSLI Child Future Assured Plan, which help you plan for the major milestones in your child's life like their education, wedding and more.

A financial plan can help you create the corpus needed for your child's future. However, if you're not careful, your debt could eat into your savings and adversely affect your plan for your child's future.

To prevent this from happening, you can make use of the following tips to keep your debt in check.

• Pay your dues and make your repayments promptly.


• Do not take on more loans than your repayment capacity.


• Utilize only 30% to 40% of your available credit.


• Pay off high interest debt first.

These ideas can help you keep your debt within reasonable levels. Make sure you do not take on new debts as you get closer to retirement.

It is also important to ensure that your child is financially educated. Only then can your child understand the value of your savings and the purpose of your investments. To ensure their child is financially savvy, many parents give their kids their own pocket money and enable them to track their spendings.

That is one way to go about it. But it's not enough. When your child is old enough, you also need to educate them about savings, investments, taxes and personal finance in general. Allow them to read up on these subjects, and encourage them to ask questions when in doubt. Cultivating their curiosity about financial and investment-related things allows them to form good personal finance habits.

With these steps, you can get started with planning for your child's future. Keep in mind that whatever investments you may choose, it is essential to add your child as the nominee. This makes it easier for your child to access the funds in case something untoward happens. It also saves them a lot of trouble and allows them to enjoy the benefits of the secure future you've planned for them.

MISTAKES TO AVOID WHILE INVESTING FOR YOUR CHILD'S FUTURE

When you're planning for your child's future, it's important to know what to do. And it's also important to know what not to do. We have a blog that outlines some common mistakes to avoid when you're investing for your child's future.

SPEAKING OF THE FUTURE, DID YOU KNOW THERE'S ONE PLAN THAT COVERS ALL YOUR NON-NEGOTIABLE LIFE GOALS?

We're talking about the ABSLI Guaranteed Milestone Plan, of course.

This savings plan gives you a wide range of benefits that help you meet your life goals without any trouble. Like guaranteed additions, customizable benefits and the option to cover your spouse in the same policy!

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