It can be hard to save and invest for your child at different stages of life. But you can get help if you take a few simple but important steps for your child you have to start saving and investing
Seeing your child grow from a baby to a teen to an adult is a beautiful thing to see. Even when a child is grown and on their own, a parent’s love and care for them never ends.
Even though your love for your child doesn’t have to change as they get older, how you plan to secure their financial future needs to change to fit their stage of life to start saving and investing for your child’s life.
As your child gets older, the costs of raising them, sending them to school, paying for extracurricular activities, etc. will also go up, and your budget should reflect that. This helps you keep track of your money and helps your child reach his or her dreams and goals.
Decide investment goals start saving and investing on your child’s life-stage
There are two big parts of a child’s life that will require a lot of money from you: college and after college (this can include weddings).
Since going to school is an ongoing cost, you will probably use your regular income to pay for this part of saving for your child. This will still require a good budget, since school and extracurricular activities aren’t cheap anymore, especially if you live in a big city.
When it comes to things that require a lot of planning, you need to start saving and investing money as soon as possible. You should also save money so that you can get the money at different times when you need it.
The first step is to figure out how much you need to save based on the goal you want to reach. This number needs to take into account the fact that inflation is going up, because the Rupee’s value now and in five years will be very different. The next step is to figure out how much you need to put away each month or each year to reach the goal amount at your child’s age.
How to efficiently plan asset allocation?
How you divide up your assets depends a lot on how long you have until you need the money. If you want to beat inflation, you need more growth over a longer period of time.
For shorter time periods, it’s best to invest in stable return instruments like fixed-income instruments. When investing for the long term, you have more time and should put more of your child’s money into equity.
Let’s use the above table as a guide for your child’s college education. Based on the assumption that college will cost Rs 30 lakh in 2022, your money needs to reach Rs 54 lakh if your child needs the money in 10 years, and Rs 72 lakh if your child needs the money in 15 years.
When you invest in stocks for 10 years, you can get a higher rate of growth than with fixed-income instruments. You can put more of your money into equity investments (like mutual funds, stocks, and ETFs) and less into fixed-income investments. If you want to invest for 15 years, you can do the same thing, but you should put even more money into stocks.
But if you plan to stay in one place for less than five years, you should put your money in fixed-income investments like bank fixed deposits, bonds, debt funds, etc. This means that your monthly or annual contribution will be much higher because you will have to put more weight on debt tools than equity for this time frame.
Additionally, you should invest in a way that your funds mature gradually at different life stages of your child.
Keep it simple
It can be hard to save and invest for the different stages of your child’s life. But you can help yourself by taking a few simple but important steps. Start by separating funds for short-term and long-term goals. Then, decide on the right asset allocation based on how long you have until your goals are reached and how much risk you are willing to take.
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