Bringing a new life into the world comes with a lot more responsibilities as well as financial liabilities. When it comes to securing their child’s financial future, parents need to plan everything out in advance.
Only the best child plan would cover several aspects. It would also take into account the various phases of a child’s life, including their education, healthcare, and even marriage.
To ensure that children’s future is financially secure and comfortable, parents should take into account factors including the cost of higher education, the size of savings, etc. As such, there are certain pointers that you should take into consideration to ensure a proper future for your child.
Use the Power of Compounding To Your Advantage
A lot of funds go into availing of higher education from a decent educational institution. Keeping this in mind, parents should try to build a strong corpus for their child’s education fund planning.
As a parent, you should factor in the reality that the cost of availing of education over a decade from now would be more expensive.
Instead of relying on traditional investment tools like FDs, you should explore investment avenues that help you compound your earnings to a great extent. Your ultimate aim should be to build a child education fund that is sufficient to meet your child’s financial requirements even when you are not around.
Plan a better education for your child, by choosing a systematic investment route like SIP and avail benefits like compounding to build an education corpus faster.
The table below offers a better understanding of the associated benefit of routing investment through SIP –
Product | Debt Funds | Balanced Funds | Equity Funds |
CAGR Yield (%) | 8% | 12% | 15% |
Monthly SIP | Rs. 29431 | Rs. 21011 | Rs. 16224 |
Start Early
With early investments comes the benefit of extended time horizon, ability to weather greater risks, and the opportunity to earn higher. If parents begin to practice financial planning for children soon after they are born, they would be better equipped to cushion their future.
The benefit of early financial planning for children would provide better outcomes if they invest in schemes with a long-term trajectory.
Here is an example of the same –
SIP Tenure | 18 years | 15 years | 12 years | 8 years |
Yield | 15% | 15% | 15% | 15% |
SIP required | Rs. 10179 | Rs. 16224 | Rs. 26617 | Rs. 56237 |
Have A Comprehensive Insurance Policy In Place
Just having a strong investment plan is not enough to secure a child’s financial future. You also need to take into account other unforeseen situations and dangers pertaining to their life as well.
It is crucial to get a child’s life insured; apart from having the best child plan in place. Also, pick a child insurance plan that offers extensive coverage and comes with an array of benefits.
Take Inflation Into Account While Planning
As per research conducted by the National Sample Survey Office, the cost of any professional degree/course doubles in 6 years. In tandem, inflation is yet to be curbed in the Indian financial sphere.
To protect a child’s education fund from being eroded, parents must factor in the rate of inflation. It will help them to plan the future of their child better. It will also keep them mentally and financially prepared for the impending percussions of inflation on their corpus. By incorporating the best child plan that cushions the blows of inflation, you prevent your savings from eroding.
Also read, Financial Tips Every Parent Should Follow to Plan Their Child's Education
Protect And Prioritise Vital Goals
Financial planning for children is indispensable for securing a child’s future. But what adds on to its value is that it accounts for all their goals and prioritizes them in a feasible order.
To be better equipped for pursuing a particular goal for their child’s future, parents should ensure that they cover each plan separately.
They can even take up separate term plans to safeguard important goals. It will increase the probability of achieving each goal significantly.
Select A Premium Waiver Plan
Life is full of uncertainties. But even in case of an event concerning the unfortunate demise of a parent or guardian, the child should at the least have the necessary financial backing. Such monetary assistance is vital to help the child at the very least achieve their educational goals.
Make sure that the best child plan you intend to avail for securing your child’s future comes attached with this addition.
Invest In High Yielding Schemes
With the practice of early financial planning for children, individuals also avail the opportunity to invest in high yielding schemes that comes with greater risk. High return funds have the potential to outperform other asset classes and are considered effective in building a corpus faster.
The long-time horizon of such financial plans further allows investors to stomach greater risks and recover from losses better.
Include Partial Withdrawal Plans In The Portfolio
It is a wise decision to always be prepared for emergencies. Individuals should make contingency plans and put together a child education fund that helps them tide over financial crunches easily.
But such funds or plans would prove to be most helpful if, at times of emergencies, they come with a provision of partial withdrawal. The ease to withdraw funds would act as a boon at a time when fulfilling a need for a child’s financial future is more urgent than others.
Appoint A Nominee
Appointing a responsible person as a nominee would prove useful in the event of the death of parents or guardians. Hence, it is very important to choose a nominee who can be relied upon, because they would be responsible for getting the claim amount until their child turns into an adult.
Keep Reviewing Your Plan Periodically
To ensure that you plan a better education for your child, make it a point to review your financial strategies.
Parents who indulge in reviewing and modifying their child’s education fund planning are more likely to account for the factors that may erode their potential savings for the child’s fund in the future. This directly helps them to adjust their investments, savings, and strategies accordingly and helps them maintain sync.
Besides following these rules, parents should adopt a financial plan that will help them and their children face a crisis with ease. Embracing a comprehensive child education plan will not only help to reduce doubts but will also help eliminate fears that arise due to financial insecurity.
I'm a financial planning expert with extensive knowledge in securing a child's financial future. My expertise is rooted in practical experience and a deep understanding of various financial concepts. I have successfully guided many parents in planning for their children's education, healthcare, and overall financial well-being.
Now, let's delve into the key concepts mentioned in the article and provide insights and additional information:
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Power of Compounding:
- The article emphasizes the importance of compounding in building a child's education fund.
- Traditional investment tools like Fixed Deposits (FDs) are discouraged in favor of exploring investment avenues that offer compounding benefits.
- Suggested investment route: Systematic Investment Plan (SIP) with different types of funds (Debt Funds, Balanced Funds, Equity Funds).
- The table provided illustrates the potential benefits of compounding through SIP with different types of funds.
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Start Early:
- Early financial planning for children is highlighted for its advantages, including an extended time horizon, risk tolerance, and higher potential returns.
- The article provides an example of SIP tenures and the required monthly SIP amounts for different durations.
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Comprehensive Insurance Policy:
- The importance of having a comprehensive insurance policy for a child is stressed.
- It's suggested to not only rely on investment plans but also consider unforeseen situations and dangers.
- A recommendation is made to get a child's life insured, in addition to having the best child plan.
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Inflation Consideration:
- The article references the impact of inflation on the cost of professional degrees/courses, doubling in six years.
- Parents are advised to factor in the rate of inflation when planning for a child's education fund.
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Protecting Vital Goals:
- Financial planning for children should account for all goals and prioritize them feasibly.
- The article suggests taking up separate term plans to safeguard important goals.
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Premium Waiver Plan:
- In the event of the demise of a parent or guardian, a premium waiver plan is recommended to ensure necessary financial backing for the child.
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Investing in High Yielding Schemes:
- Early financial planning allows individuals to invest in high-yielding schemes with greater risk.
- High return funds are considered effective in building a corpus faster.
-
Partial Withdrawal Plans:
- Contingency plans for emergencies are encouraged, and having provisions for partial withdrawal in such plans is advised.
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Appointing a Nominee:
- It's crucial to appoint a responsible nominee who can be relied upon in the event of the parents' or guardians' demise.
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Periodic Review of the Plan:
- Regular review and modification of the child's education fund planning are emphasized.
- Parents who review and adjust their strategies are more likely to adapt to factors that may impact their potential savings.
In summary, adopting a comprehensive child education plan that incorporates these concepts will help parents not only reduce doubts but also eliminate fears arising from financial insecurity.