If education at a renowned engineering college today costs Rs 10 lakh, it will not cost the same 10 years down the line. In such a scenario, it is prudent to start with financial planning early. The earlier you start, the better equipped you will be to realise your dreams and prepare for life’s eventualities.
You can start by making a rough calculation. Find out how much your child’s education may cost and subsequently set a target.
Remember to factor in inflation as well as any unforeseen financial need in your plan.
Now, to achieve this goal, inculcate a discipline of saving. The practice of saving is the most crucial aspect of financial planning.
If saving plays a crucial role, so does budgeting. Hence, it becomes imperative to plan your monthly budget. It will also help you optimize your spending in a particular month. Once you are geared towards it, it will be easy to achieve your financial goals within a defined time frame.
As you start chalking out your savings and spending, begin investing as well. The idea again is to begin as early as possible.
Investing early gives you a head start and multiplies your savings manifold. For instance, if you invest in a SIP of Rs 5,000 having a nominal rate of 12 per cent, your returns after 10 years will be approx. Rs 11.61 lakh (with Rs 6 lakh invested).
A year later, while your investment will be Rs 6.60 lakh, your returns are going to be worth Rs 13.73 lakh. Five years down the line, you will have Rs 29.06 lakh with just Rs 9.6 lakh invested - or with returns worth more than three times your original investment. A single year of difference at this point changes your return by Rs 4 lakh approximately.
Your investments may vary depending on your child’s needs. Hence, it is essential to continually evaluate and realign the plan as per the changes. But, what should remain constant is your long-term vision is what truly matters to your child.
At the end of the day, all of your savings only have real value if your kid realizes what they mean. In other words, teach your child the essence of financial discipline from an early age.
In this context, merely handing them pocket money or rewarding them for desired behaviors will barely serve the purpose. You have to keep a tab of their spendings constantly and course-correct whenever needed.
The generation has gifted us with mobile wallets and smart credit cards that are specifically designed for this purpose. Adopting such smart approaches will go a long way in building your child’s future.
This practice will also give them some sense of having their own savings and money of their own to look after.
Over time, you can teach them about different savings products, asset classes, and things like interest and dividends, as they can see for themselves how these work.
In a nutshell, investing for a child requires a systematic approach right from the beginning. So, make a comprehensive financial plan and start now!