How To Plan For Your Child’s Marriage

[Child's Future Planning Series]

Session 4: How To Plan For Your Child's Marriage

We are glad to have you with us for our 4th Session of Child's Future Planning series – and that is…

How To Plan For Your Child's Marriage

Most parents, want to make the wedding of their child one of the most memorable occasions of his / her life.

There was a time when weddings were only an auspicious day for the holy unison of two families which was done at a decent and rational cost.

But these days, weddings have become an occasion to display one's social stature and wealth. They are turning into a grandiose affair: fun-filled, colourful and musical where parents want it to be the talk of the town.  However, all this comes with a price tag.

You see, although marriages are the happiest moments of our lives, the cost associated with it can create a sour memory, if not dealt with care and prudent planning. At the same time, not all children would agree to be high spenders for their marriage. Hence there is a need to recognise your children's point of view on their preferences for marriage expenses.

In this session we'll introduce you to a sensible approach to plan for your child's marriage.

A Sensible Approach To Plan Your Child's Marriage

  1. Start early – Remember the old adage, “Rome wasn’t built in a day.” Therefore to accomplish the dream of getting your child married begin saving and investing early —perhaps when he/she is a toddler.

    Starting early has a variety of benefits:

    Permits you to take a relatively higher risk and invest in equity mutual funds and    benefit from potentially higher returns in the long run
    Helps to benefit from the power of compounding; and
    Allows you to contribute smaller amounts regularly over longer periods

  2. Rationally estimate wedding expenses – Don’t be carried away by societal pressures or affluent friends or neighbours. Remember, each one’s personal finances are unique. There’s also no need to ape others blindly, as each one’s financial circumstances/situations are different.

    Therefore, focus on YOUR  budget as there are other vital financial goals to fulfil as well like your child’s education and your own retirement, among a host of others.

    While estimating the wedding expenses, take into account the present value i.e. the amount you would have spent today on your child’s wedding on a rational basis. Extrapolate the future value considering inflation and the time horizon before the goal befalls.

    Then work out the periodic monthly investments you need to save in mutual funds via systematic investment plans or SIPs. Keep in mind that the earlier you start this exercise, the lesser you would have to set aside and invest per month to accomplish this financial goal.
  3. Avoid creating any debt – Adopt a practical approach to all wedding related expenditure. For instance, if the means are limited, consider choosing an affordable venue, compromise on décor, limit the guest list; among others.

    The last thing you should do is use credit cards for any large wedding expenses or taking a personal loan. It’s best to avoid borrowing for a wedding.

    Instead, only use those funds you have accumulated via financial planning for this goal of your child’s marriage.
  4. Avoid utilising funds from other goals  – If you’ve also assigned funds to meet other important goals such as child’s education and your retirement, avoid utilising them for your child’s marriage.
  5. Invest smartly to build the corpus –Investing in equity mutual fund schemes may prove rewarding if time horizon for marriage is more than 5 years.
  6. Follow an asset allocation approach – besides equity, you may include gold as an asset class to save for this goal. Also you may invest via gold mutual funds or ETFs rather than physical gold.

    As the goal nears, you may rebalance your investment portfolio gradually towards fixed income or debt as depicted by the table here…

    Asset Allocation As Per Years to Goal
    Time Horizon Equity Debt Gold
    More than 10 years 90% 0% 10%
    8-10 years 80% 10% 10%
    5-8 years 70% 20% 10%
    3-5 years 40% 55% 5%
    0-3 years 10% 85% 5%
    This table is indicative and for illustration purpose only
    (Source: PersonalFN)

    A well-planned asset allocation helps to act as a shield to protect the portfolio value during uncertain economic conditions and market volatility.
  7. As parents ensure that you are adequately insured – The demise of the breadwinner of the family causes a BIG setback to your dream of providing the best to your children. Therefore, as parents ensure that you are adequately insured.
  8. Pure term life insurance plans may be considered to indemnify risk to life for the cost-to-benefit they offer.

    Likewise, optimally insure for health, as not having an adequate medi-claim cover or not having one altogether, can potentiallyderail your financial goals if medical emergencies arise.
A Case Study

Mrs Gupta wants to invest for her daughter’s marriage 22 years from now (current age 2 years). At today’s cost, the marriage cost would be around Rs.10 lakh…  

Mrs Gupta’s daughter (age) 2 years
Cost of Marriage today Rs 10 lakhs  
Time left for Marriage 22 years
Inflation rate 7% p.a.
Future Value at time of marriage Rs 44.30 lakh
Amount Mrs Gupta needs to immediately invest per month Rs 3,419 
Amount Mrs Gupta needs to invest per month if she puts off investing to another 5 years Rs 6,633

As per the table here, assuming inflation rate of 7% p.a. the cost of getting her daughter married 22 years from now  would be Rs 44.30 lakh. And to achieve the same, Mrs Gupta will immediately need to start investing Rs 3,419 per month systematically for 22 years in avenues such as equity mutual funds that can potentially fetch compounding annualised return of 12%.

However  if Mrs Gupta puts this off by another 5 years for some reason i.e. when her daughter turns 7, she’ll need to nearly double the monthly investment amount to Rs 6,633  and invest for 17 years to accomplish the future value of the financial goal. 

The moral of the story: The earlier you start investing, the lesser you'll need to invest each month to achieve the same amount of money at the end of the goal.

Finally, before we wrap our today’s learning session, here are a few…

Points to Remember…
  • Some things could be a necessity for a few, but luxury for you. It is for you to decide “what you need to have” and what can be “avoided”.
  • Stay away from mimicking, and instead focus on your budget/personal finances, in order to avoid debt and jeopardising your family’s finances.
  • To get your children married, save for the financial goal, but ensure that you’re biting only as much you can chew.
  • Start planning for your goals early. A longer investment horizon can facilitate better power of compounding.
  • Rationally estimate the future cost of marriage, recognising inflation.
  • Invest money systematically in mutual funds to achieve your goals.
  • Follow an asset allocation model by investing across asset classes like equity, debt and gold. Rebalance to debt as you approach your goal.
  • Don’t divert any investments already assigned for other vital financial goals (like child’s education, your retirement) for your child’s marriage.
  • (And last but not the least), recognise the preferences of your children on marriage. They may not want to spend too much.

So to end our learning exercise today, we now invite you to test your learning by taking up this simple quiz (and win exciting prizes!)

Just Click On The Link Below.

Thank You For Participating!

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