In today’s world, most parents start saving for meeting the diverse needs of their children. At the same time, it is important to understand that saving alone is not enough. It is fundamental to save a ‘fitting figure of money' and invest it methodically in appropriate investment avenues. Plainly put, saving an amount of money in your savings bank account will not earn high enough returns to create the needed corpus to meet your financial goals accounting for inflation and other things. Consequently, you must decide on the right investment options so that your portfolio progresses towards each of the financial goal set for your child's brighter future.
Opting for the perfect portfolio mix (Equity, Debt, Gold) could be an overwhelming task for most investors. Many are usually undecided about put their savings in the stock market due to the instability factor. But in the long term, equities as an asset class will basically help you to create the corpus necessary to meet your financial goals - even after regulating your current lifestyle for the rising cost of living in the form of inflation. Therefore, if you are about say, 10 years or more away from an assumed financial goal like funding your child's professional education, then you may take a greater exposure to dicey asset classes such as equities, because you have larger flexibility and opportunity to grow your money.
With the rising awareness about mounting cost of education and other child care expenses plus medical expenses, numerous companies have launched various "child care" investment products. It is advisable to buy child plan that will mature around the time of your child's education or marriage. These policies take care of most expenses with the insurance cover with additional benefits. But before you blindly hawk jump onto the bandwagon, it is crucial to understand their viability for you and your requirements. Mostly, these policies prove to be expensive ULIPs or often come with higher charges.
While making your financial plans, it is essential to take account of an adequate insurance cover as well. ULIPs and endowment plans relatively don't offer enough insurance and may not make adequate returns either. It is vital that you keep your investments and insurance separate. Your insurance must only and only shield you and your family from financial dilemma. Hence by supplementing the investment portfolio you have created for your children with adequate term insurance, you will be able to meet your objective of protection without having to pay for heavy charges.
Some pointers you must keep in mind before you plan your finances:
- Assess your children's future needs followed by working towards those 'need based aims'. Estimate the expenses that may arise in future (pursuing education overseas or medical expenses)
- Begin saving and investing much early to facilitate you to craft an adequate corpus for the fulfillment of your children's present and future aims.
- Financial decisions that establish your asset allocation and portfolio mix should be backed by your risk tolerance intensity (Income, Expenses, Financial responsibilities etc.) and risk appetite (Age, past experience etc.)
- It would be sensible to not dig into the funds saved for your other priorities (Retirement, Medical expenses, Housing, Rent etc.) to fund your child's education.
- Do not get carried away by the brand value of financial products. Always weigh up their characteristics and viability before making any ad-hoc investment decisions.
- Keep your investments and insurance separate. It is possible to fulfill the dreams you have envisioned for your child without giving up on your personal desires, with the help of sound financial planning and suitable asset allocation.