“I want to be a car racer and design an eco-friendly car for myself when I grow up Dad,” declares my 8-year old son one day. As I silently smile and feel proud how my little angel is dreaming ‘big’ and not settling to ‘stereotypes’, I also realize how it is necessary for parents, like me, doing a proper planning to financially support the dreams of their children.
Here are five useful tips to help parents, including new parents, plan for their child’s financial future. These are arranged in the series of their importance:
- Manage expenses: The initial years of the baby bring with it a lot of new expenses like baby vaccinations, test, clothes, baby food, etc.; and therefore, it is necessary to factor in all these expenses which will help parents stick to their budget. Also, go slow when it comes to buying things like shoes, clothes, toys, etc.; as most of these items are of little use for kids who grow up very fast.
Tip: Think before spending and prepare a monthly budget and stick to it.
- Start investing early= Take this—the cost of MBA will increase from 10 lakhs today to 40 lakhs (approx.) after 20 years.
Instead of waiting till your child’s start exploring study options, be proactive and start investing as soon as possible. Make a rational assessment of your child’s education expenses and start saving accordingly. The sooner you start investing, the lesser you would have to invest to create a corpus. For instance, if your son is three years old and you need Rs 1 crore for his education when he turns 20, you would have to save Rs 15,000 per month (at a 12% rate of return). However, if you delay it by two years, you will need to save Rs 20,000 per month to generate the same corpus.
Tip: The power of compounding does magic to your wealth, but it also requires time to grow your money. So, start investing as early as possible.
- Include your kids in your health insurance policy: If you already have a health insurance policy, either purchased yourself or offered by employers, add your child to the insurance policy. Most of the mediclaim policies let you cover your new-born after 90 days of the birth. There are some health insurers who cover your newborn without additional premium, provided they have also paid the maternity benefits under the plan. If you don’t have any health insurance policy, it is the time to buy one for yourself and get your kid covered under it.
Tip: Without a proper health insurance policy, you might have to dip into your savings if, God forbid, any medical emergency strikes, so it is necessary to get the proper cover.
- Review your term insurance cover: All the investments you start will be of no use unless you secure your life with term insurance. Be it the best school, best education, and best coaching institute, as a parent, you don’t want your kid to settle for anything less than the best. But what if you are not there to support them? An unforeseen event like death can derail your child’s financial planning. The situation becomes worse if you are alive, but lose your earning capacity due to critical ailment or disability.
To give a full-proof financial security to your child, buy a term insurance now. If something happens to you, the sum assured of your policy will take care of all the expenses. Some term insurance policies also offer critical ailment and disability cover to ensure that your child’s future is always secure even if you lose your earning power. By supplementing your investment portfolio that you have created for your kids, with a comprehensive term insurance cover, you can easily meet your objective of securing your child’s future.
Let’s understand the importance of term insurance: Here is a snapshot of your monthly expenses
|Expenses||Cost (in Rs. /annum)|
|Preliminary Education||1,00,000 to 1,25,000|
|Coaching Expenses||50,000 to 70,000|
|Health Expenses||5,000 to 15,000|
|Household Expenses||3,00,000 to 5,00,000|
|Lifestyle Expenses||25,000 to 40,000|
|Total Expenses||4,80,000 to 7,50,000|
Your family will have to bear all the expenses alone to maintain their lifestyle in case of your sudden demise or disability. However, by buying term insurance policy, your family can take care of both their current and financial needs without compromising on their lifestyle.
How much it cost?
Term insurance is the cheapest insurance policy available in the market. For instance, a 35-year old needs to pay only Rs 14,637 per annum to get Rs 1 crore cover.
How to buy term insurance?
Though you can buy term insurance both online and offline, it is strongly recommended to go with the online mode to save your money. When you go online, the insurer makes a saving in the form of policy administration cost, which is further passed on to a policyholder in the form of cheaper rates. As per the age of your child and other expenses, you can also increase or decrease the cover.
Tip: Buy a term insurance policy and secure your child’s dreams even in your absence.
As they say, the foundation of a future lays today, so for the prosperous and secure future of your child, take steps today. But remember, though your child is the centre of your world, never dip into the funds saved for other priorities like retirement, medical expenses, house etc.; for meeting your kids’ future needs.