Planning for your child’s future

Written by Vidya Kumar

June 17, 2014

Planning for a child is an imperative aspect and a big responsibility in itself. From the time the baby is conceived till the child is financially independent, each and every stage involves systematic planning for the child’s needs and future goals. As a parent, it is your critical responsibility to not only plan for important goals such as your child’s education and marriage, but also to plan for smaller needs like celebration of important occasions, etc.. 
Let us understand the need for financial planning at different phases:

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1) Before your child is born:
Expenses before the birth of your child may relate to the mother’s medication, maternity costs, hospital costs etc. The amount needed before the birth of the child varies depending upon your city of residence, hospital where you take the treatment and the health of the mother. Nevertheless, an estimate for the cost should be made and planned accordingly. Most of the group medical insurance covers provide maternity benefits with certain waiting period. You can also consider taking a secondary health insurance cover which offers maternity benefits. However, keep in mind that usually such cover comes with a waiting period of 24-36 months.

Another option would be to start saving in a separate kitty, depending upon the current medical costs involved. You can start by saving small amounts regularly, on monthly basis by investing in recurring deposits or SIPs in mutual funds, depending on the time horizon.

2) Post birth upto schooling:      
This is a stage where baby starts becoming older and parents have to incur miscellaneous expenses like buying toys, clothes, shoes, bags, prams etc for the child. This can affect your monthly budget considerably. If the mother resumes work after the maternity leave, then there is a need to plan for additional expenses in the form of  assistance from nannies or day cares. Plan for such expenses well in advance. Think innovative measures like taking a membership of online toy libraries which can help you rent toys, books, CDs, games, etc.

3) Schooling:
It’s an aspiration of every parent to give the best education to their children. But this aspiration involves cost. Besides spending for school donations, parents also have to bear expenses for school fees, books, tuition fees, etc. Hence it is significant to plan the budget appropriately so that there is no compromise with the basic education.  Start saving in mutual fund SIPs to fund the annual education expenses. Do not forget to factor in inflation, as the cost of education will only increase every year. As your child grows up and you start giving pocket money, teach him to save a part of the pocket money. This can help your child to learn the importance of saving.

4) Important goals like higher education and marriage:
Graduation, post graduation and marriage of your child are important goals which need to be planned for carefully. These are long term goals, which give the benefit of planning in equity based instruments. Estimate the year in which these goals will come up and the cost at present value terms. Then apply inflation for the time period and estimate the cost in the year of the goal. You should then work backwards to estimate the amount to be saved on a monthly basis. Although the calculations are not complex, it makes sense if you take the help of a financial planner to aid you in this planning. Investing in equity mutual funds by the SIP route is the recommended route for such goals.

Planning in advance for your child’s future not only helps in building a sufficient corpus for the various goals, but also gives you peace of mind. Let us know the steps you have taken in planning for your child’s future.

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