While planning for a child’s financial expenses, most parents plan only for a child’s education, higher studies, marriage, etc. Industry experts say what most parents miss taking into consideration are the regular expenses that increase after the baby arrives. After a child is born, expenses such as healthcare expenses for the child, the cost of hiring house-help, and schooling, are some major expenses that are skipped.
Experts say, there are many parents who start saving for their child in advance but do not bother to consider what will be enough in the long run. In fact, there are many things one needs to consider while planning for a child’s expenses. For instance, the type of investment instrument chosen also plays a big role in the growth of the asset and beating inflation.
If you are planning your finances for your child, here is how you should go about it;
While calculating the cost of education for your child, calculate the future expenses in present terms. Experts say while calculating a child’s educational expenses, a parent should consider inflation at 9-10 per cent. You can take the help of online calculators, with this type of inflation based calculation, who do the math for you.
While calculating the final cost, do not limit yourself to the course fees – consider expenses such as transportation for the child, coaching, cost of books, etc. Note that, at times these additional expenses such as coachings, school, and college education turn out to be costlier than the course itself.
If you are planning to send your child abroad for higher studies, you need to plan for that separately and specifically. For instance, courses relating to business and administrative studies, are likely to be much cheaper as compared to engineering courses.
Next depending on your goals and what you are saving for, you have to choose your investments. For instance, growth assets are an ideal option for long term goals. Children education, marriage, retirement, are considered as long term financial goals, and growth assets in these cases offer better returns. You can look at investments such as shares, property, and alternative investments under, growth assets, as they have the potential to deliver higher returns over a longer period of time, even though they carry higher levels of risks.
Additionally, while choosing the investment option, it has to be depending on the age of the child. For instance, if your goals are more than 10 years away, an aggressive investment strategy will work well, under which you could give your investments exposure to mutual funds, Ulips, and the stock market.
For short-term goals that need to be met within 2 to 3 years, parents can opt for short-term debt funds, along with bank FDs. Also, there are various child-specific plans available in the market, that come with dual benefits. These plans also offer tax benefits under section 80C.