From the moment their little fingers clutch yours, they become your world. From their first step to their first laugh to their first day at school, you walk them through all the important milestones of their lives with great pride and joy.
As parents, you always strive to provide the best to your kids. But some expenses in life demand much more than that. Your younger ones will have greater needs. Admissions to the best university, getting the best education and so much more. And for all of this, your child will need your support. And your financial foresight.
Planning for your kid’s tomorrow requires careful planning today. Given, raising a child is extremely expensive. But with a little bit of financial planning, you can enjoy this fulfilling and rewarding experience to the fullest.
So, now the bigger question is- How do you go about it? Well, here’s some Finance advice for Parents.
The first step in planning your finances is to prioritize and know where you stand currently, in terms of finances.
As an earning member, you know you are accustomed to a certain standard of living. The onus of working out the numbers to make space for your daughter’s dream is on you. You can increase the investible surplus in two ways-
- Increase your income, or
- Reduce your existing expenses.
Once you start keeping a tab on your income and expenses, you will be in a better condition to plan and cut down on unnecessary expenses.
As parents, all of you have a lot of dreams and ambitions pinned on your young ones. You want them to become the best artists, astronauts, pilots and wildlife photographers in the world, don’t you?
If your daughter wants to become a cricketer, she should have the resources to excel. But for that, you will need to put her through the best college or school there is, with the best academy, to give her the required launching pad. She would also need a cricketing gear, to begin with, won’t she?
Right there, you have broken down the trajectory of your daughter’s dream into a sensible, goal-based financial plan. Her long term dream might be to become a cricketer, but how will that be fulfilled? Only if the mid-term objective of her academy training and the short term objective of getting her that gear is met.
For Short-term Goals( 1-5 years)- Annual fees for her training fees, money for her cricket gear- all of these are short term goals, ones that keep occurring every year on a regular basis. For such expenses, short-term funds like liquid funds and short-term debt funds are ideal. Such funds will allow you to save for recurring expenses while allowing you to earn additional returns as well. Returns earned on such funds are generally high.
These funds have high liquidity i.e. they can easily be converted to money and provide fair returns. They usually yield around 7-7.5%, which is better than most traditional financial instruments. And additionally, come with the benefit of being tax-free! You can choose to opt for these in order to manage your short term goals.
For Mid-term goals(5-10 years)- Trips, excursions, training camps and the like. For your daughter to achieve her long term goals, it is important to have sound financial backing. These are also the times when you need to accelerate the process of creating the corpus.
The best way to go ahead with achieving such objectives to invest in equity. Equity provides stable growth and good returns at the same time. Investing in any medium-term equity fund or ELSS or Equity Linked Savings Scheme Funds is a suitable idea. You could put money into the medium-term fund, where you can expect 8.5% to 9 % returns annually.
For Long-term goals( 10 years or more)– These goals are yet to be realized and are way into the future, but you need to start investing for them early on. This is because they require a huge corpus of money to be fulfilled. You can opt for one of the two ways to achieve that-
- Begin investing in Index Funds. Index Funds are funds that replicate the market performance as reflected on major indices like Nifty( NSE) or Sensex(BSE). They are safe bets with guaranteed returns.
- Directly invest in an equity-based mutual fund, for they are known to generate an annual return of 13-15% per annum.
Again, depending upon your young one’s requirements, college fees etc. you can opt for hybrid funds as well. SIP or Systematic Investment Plan route is the most preferred and favourable option for the same.
Apart from educational and career goals that we envision for our children, we also dream of their happy marriages and families. And for the dad’s who have a special place for their daughters and who wish to make the day special, you can start small today with Sukanya Samriddhi Yojana (SSY).
SSY is a small deposit scheme launched specially for the girl child. Why it is significant is that it comes with a maximum tax benefit of Rs 1.5 lakh under section 80C of the Income-tax Act. Further, the interest accrued and maturity amount is exempt from tax. Isn’t that great? All you need to do is meet the following criteria in order to be eligible-
a) Age of your girl child should not exceed 10 years
b) She should be a resident citizen of India
c) The account cannot be opened for more than two girl children in a single family
The best part is, you can start small. The minimum amount you can invest is Rs 250 and the maximum is Rs 1.5 lakh in a single financial year. According to the scheme rules, you are required to make deposits every year till the completion of 15 years from the date of opening of the account. Between the 15th year and 21st year, you don’t need to make any deposits. However, you will be earning interest on the earlier deposits made at a rate of 8.1%p.a. That’s a win-win situation for everyone!
Working towards securing the financial future for your young ones is your topmost priority. With diligent financial planning, beginning today, you can provide your child to excel and achieve all her dreams.
So what are you waiting for? Start planning and investing today!
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