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  • Writer's pictureSahastha

Child’s future – how to secure it financially

Updated: Oct 4, 2023

Being financially prepared for your child’s future is not as easy as earlier. Today’s scenario is very different. When it comes to securing a child’s future, parents need to plan everything out in advance. It will include their day to day expenses, education, health care, marriage. I think every one of us should first take a moment to understand exactly how big is the responsibility of bringing a new person into this world.

Planning of your child’s education

Yes. As parents we want our children to succeed. We feel education can contribute to that success. Education is more globalized with specialized coaching to get into a good institution, all of which is very expensive. Schooling and graduation from renowned institutions could easily run into lakhs.

Schooling

In elementary level studies itself, many parents go beyond their limits to fund for their child’s education, but you must review your situation before you start spending. Make sure that your expectations are in direct correlation with your capacity. As a parent do not contribute more than 10% of your annual income.

Let’s take an example of a child who is 5 years old. Now the parents would need a lump sum amount to get their child into the school. The cost of admission will approximately cost around ₹1 lakh in today’s value. So, make a schedule and start monthly investment of around ₹16500 in short term investments (Assumed return 4%) like RD’s in this 6 months’ period.

Graduation

Most of the parents nowadays go beyond their means to provide their child with the best of education. Irrespective of their income, parents want to spend beyond their capacity. If someone is sending their child to an expensive college, there is herd racing going on in the society. Firstly, you need to plan according to your affordability, what kind of college you want to send your child in, what kind of course you want to prefer. Let’s say professional education like medical science, engineering, computer science and MBA cost higher. As a parent, we should factor in the reality that the cost of availing education over a decade from now would be more expensive. Rapidly increasing education costs may be much higher than our salaries. But as a parent, we want to ensure that nothing can come in our way for providing whatever our child wishes for. But to do that we will need decent amount of savings which we have to plan early.

Let’s suppose we have to calculate average graduation expenses for the 5 years old child in the next 15 years. The present cost of doing engineering from IIT is about ₹10 lakhs for general category student, the cost could go up to ₹36 lakhs when child reaches age of 20 years (considering inflation of 9%). You should invest ₹9000 p.m. in next 15 years with an assumed return of 10% for attaining this graduation goal.

If your savings are not enough at the time of graduation, you can explore options like education loans but taking significant amount of loans at the time of need affects the savings you have made for retirement and also impacts the personal budget of the family.

How to plan marriage corpus?

Every parent wants to make the wedding of their child one of the most memorable occasion, it’s one of their life’s ambitions, this is one thing that no parent will compromise on. An important thing attached to wedding is “expenses”, that costs around ₹10 lakhs today and could cost ₹30 to 40 lakh in the next 15 – 20 years. This cost will depend on how lavishly the parents want to go forward with marriage proceedings. Many parents are burdened under the societal pressure, affluent friends, neighbors, expectations and compelled to go beyond their means. In this bargain, they drain out most of their financial resources or worse even take loans. Be cautious about this, an emotion makes you vulnerable to exploitation. To accumulate marriage corpus, you can take into consideration of ₹10lakhs in today’s value with 7% rate of marriage inflation, you should invest ₹5300 p.m. in next 20 years with an assumed return of 10% for attaining this goal. Basically it’s a type of child utility goal. Once he/she turns 25 years old, they will be matured enough to utilize this money, may be for their career (business, profession) or marriage etc.

Conclusion:

You need to realize on average how much money you need to park for your child’s education and marriage. It requires disciplined approach right from the beginning. As per the above example of 5 years old child, it will require monthly investment of ₹31000. It will double for two children. So, make a comprehensive financial plan to safeguard your child’s future and start now.

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