Providing the best of all things soon becomes the agenda of all parents upon the arrival of children. The eating out budget soon gets replaced by diapers and toiletries for the newborns. Your shopping list fattens up each time your children outgrows their clothes and accessories. While these money adjustments are short term and don’t require extensive planning, ensuring quality education and healthcare requires planning ahead of time. It’s important that you secure your children’s future – especially education, health and sustenance – even if you are not around. Here are some simple steps you must take to ensure you have the right amount of money when your child is about to go to college.
Education expenses are only going up every passing day. So a course that costs Rs.10 – 12 lakh at the moment will inflate to cost Rs. 30 – 50 lakh, 15 years from now. When you calculate the funding needs of your children, assess the future cost by factoring in inflation. Creating a corpus for college is a long-term plan and if you start investing from the time your child has just been born, you get two decades at your disposal. The effect of compounding growth will allow you to create a fund with small, monthly contributions.
Invest in mutual funds
Mutual funds offer you different investment choices to build wealth. Basis your risk appetite and investment horizon, you can select from equity mutual fund, balanced mutual fund and debt fund. The return prospect depends on the risk associated with the underlying assets of the mutual funds. For example, equity-based mutual funds have higher return potential in the long run as they invest in stocks and the risk associated is higher. You can opt for the SIP route to mitigate the fluctuations involved. You can start SIP investment with an amount as small as Rs. 500.
Start small and step it up
The fund you need to raise may be astronomical but do not get intimidated by the magnitude of it. You can always start small and step it up. For example, say you earn Rs. 50,000 per month at the moment and you save Rs. 10,000. Next year, when your income goes up by 10%, you can increase your savings by 10% as well. This will allow you to start early with baby steps when you have limited means. You can always step up when your income grows.
Life and health insurance products are much needed in a financial portfolio. Life insurance ensures your family stays financially protected even in your absence. Aim for a corpus of 10-20 times of your annual salary to keep your family financially afloat and help your children achieve their goals.
In order to keep the increasing healthcare expense at bay, add a health insurance in your financial portfolio. Do not rely on your corporate insurance solely, as it may not be adequate for your family in the long run. Also if you are temporarily out of your job or transiting from one job to another, you won’t be covered by your corporate insurance. So, add a separate policy to cover yourself and your family adequately.
Build An Emergency fund
Last but not the least, have a liquid fund worth 6 months to a year’s income ready to keep you going with your rent, education fees, utilities and other regular household expenses in case you were to face any unforeseen circumstances. A sudden job loss or health issue can put you out of action for days and months together. You cannot let it cause disruption on your children’s education or stop paying the rent for that matter. An emergency fund comes handy in such situations.
The author is CEO, BankBazaar.