Easy Guide To Understanding How To Plan Expenses of Your Child

Jun 01, 2018 | 6 months ago | Read Time: 3 minutes | By iKnowledge Team

From the moment our child is born, as parents we want to ensure we can provide for all their needs. To ensure your finances are secure and you have the long-term ability to pay for your child’s expenses, it is critical to have a plan for your savings. However, merely saving money isn’t enough, you must ensure your savings consider all short term and long-term expenses as well as have enough cushion for unexpected costs. While it can seem overwhelming when assessing what is the best investment plan for your child future, you can follow a few easy steps to make sure your child’s financial future is secure.

Step 1: Estimate your needs

The first step in your action plan for your child plan should be estimating properly how much you need to save for your child. This includes all long term big expenses of paying for higher education, mortgage support, medical care and more, as well as regular expenses of paying for school, extracurricular activities, day to day medical care and expenses. In addition to this, you might have personal preferences of wanting to pay for your child’s wedding, first mortgage, car or any other expenses all of which need to be considered. When undertaking financial planning also ensure you provide a substantial cushion for unexpected healthcare and hospitalisation costs, as these can cause immense financial strain on parents and might deter your investment plan for your child.

Step 2: Consider all risks and other needs

While step 1 is to understand what expenses your child will have in the future, it is equally important to understand how these expenses will be affected by other factors over the long-run, most importantly inflation. While doing financial planning for child future, make sure you consider the rising costs of big expenses such as education and healthcare.

According to a report by the National Sample Survey Office (NSSO) average private expenditure for general education has increased by 175% to over Rs. 6,788 per student. In Delhi itself the cost of general education has increased three-fold since 2009. The same is valid for government schools where, a few years ago Kendriya Vidyalaya increased fees threefold from Rs. 4,500 to Rs 12,000. Higher education costs are also likely to increase with an average MBA degree estimated to cost around Rs 50-60 lakhs by 2025 and an average engineering degree estimated around Rs 25-30 lakhs.

Similarly, one must consider the estimated rise in cost of healthcare over the years. Between 2004 and 2014 the average increase for medical expenditure on hospitalisation in India increased by about 176% in urban years as compared to the change in purchasing power parity over the same period, which only increased by 121%. This pattern is likely to continue over the years to come and it is rudimentary to take this into account when financial planning for your child.

In addition to this, when assessing the risks of your investment plan, make sure you consider the fact that you may not be around the whole time. Nobody wants to think about it, but the uncertainties of life mean that you need to make sure your plan is rock solid in providing for your child’s future in case of your accidental death. Unanticipated death of a parent is a very hard thing for a child and insurance plans often help secure their future in case something like that happens. Often such plans provide a policy premium waiver to a child, giving them a lump sum after the death of a parent. The company continues to invest money for the policy holder in such a case, making sure your child’s future is secure. Similarly, also consider the uncertainties of the market and ensure that some of your investment have guaranteed returns and are not subject to market fluctuations.

Step 3: Understand your options

The last step in planning for your child’s future is to understand how to go about investing your savings so that this money is available when you need it. While considering a child plan, consider the age of your child, the money you want to save, rate of inflation. The simple logic is that the sooner you start saving, the less burden you will have to face per month of doing so. Additionally, know all the investment options available to you, and take risks while making sure you have enough cushion in case the risks backfire. If you start saving earlier you have the liberty of undertaking certain riskier investments, along with certain guaranteed investments as you have the cushion of time in case anything goes wrong. Other options available to you include: child insurance plans, equity investments, fixed deposits and many more, which you can use in combination depending on the years you have left to save.

While these costs and factors can seem daunting at first, it is important to remember that merely planning once and letting your plan shape up isn’t enough. It is equally important to keep going back to ensure your financial plans are on track to consider any changes in your life plans, other savings, financial climate. You can invest in Aegon Life’s iMaximise plan to secure your child’s future forever even if you are not around.

Advt. no.: IA/MAY 2018/3977


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