Dos and Don’ts While Planning For Your child’s Future



[Child's Future Planning Series]

Session 6: Dos and Don’ts While Planning For Your Child’s Future


We are glad to have you with us for our 6th Session of Child’s Future Planning series – and that is…

Dos and Don’ts While Planning For Your Child’s Future

“The greatest gifts you can give your children are the roots of responsibility and the wings of independence.” – Denis Waitley (one of America’s best-selling author, motivational speaker and a consultant)

Children are watching their parents as they grow up. So, as a parent you ought to be responsible in your actions, while you wish the best for them.

If you are a reckless spender, most likely, your children too would turn spendthrifts. As a result, the family’s long-term financial wellbeing could be jeopardised.

But on the other hand, if you judiciously manage your hard-earned money, this habit could germinate among your children too, and as they get independent, they would be able to handle their personal finances more prudently.

So, be very careful!

In this session we’ll take you through what you should do and what you should not while planning for your child’s future.

Things You Should Do While Planning For Your Child’s Future


  1. Start early – Begin the process of saving and investing early.

    Starting to invest early for your child’s future needs, will prove effective in compounding money.

    Also, children must be taught about money from an early age. Teach children the value of money besides how money saved and invested can grow over time. Make a conscious effort to make your child money-wise.
     
  2. Invest sensiblyConsider the age of your child and the investment time horizon available to meet financial goals like education, marriage expenses, among others.

    The objective should be to make productive investments that counter inflation well and comfortably achieve the envisioned financial goals.
     
  3. Take calculated risk – Recognise that you are planning for your child’s future needs. So, take risk based on the investment time horizon available to meet goals. Not taking risk at all, just because you are risk-averse, may not be prudent. So handle risk appropriately.
     
  4. Diversify your investments – Do not put all your eggs in one basket. This is one of the basic tenets of investing that will potentially reduce the overall risk to your investment portfolio. Broadly, you have four asset classes to invest: equities, debt, gold, and real estate. Recognise the risk-reward relationship of each asset class and select your investment avenues wisely in each of these. Also, make sure you strike an appropriate asset allocation.
     
  5. Know the tax implication – When investing for your child’s future, don’t invest without checking the tax impact. Recognise the tax implications so that you clock tax-efficient returns.
     
  6. Have a financial plan – If you fail to plan, you plan to fail. A financial plan is a roadmap to achieve your financial goals. Seek help of an investment adviser/financial planner to make one. She will conduct a need-based analysis and help you define your investment objectives, risk profile, asset allocation; classify goals into short-term, medium-term, long-term, and much more to provide customised investment solutions.
     
  7. Make sure you are optimally insured – One of the biggest potential setbacks to a child's future is the demise of the breadwinner.

    Hence, make sure you have optimally insured for life, so as to cover a substantial portion of your child’s education.

    Also, include your children in your family health insurance policy, else you may need to dig into your investments to meet any medical exigencies.
     
  8. Keep debt low – Don’t bite off more than you can chew! In money management parlance, this refers to living within your means. As far as debt is concerned, you must learn to stay within reasonable limits of your repayment capacity. Please teach this to your children too and consciously make efforts to reduce your debt burden. This will help you to increase your investible surplus as well.
     
  9. Get a financial health check-up done regularly – As a parent and as a breadwinner of the family, get a financial health check-up done regularly by reaching out to your investment adviser.
  10. Involve children in financial discussions in some way like :

    • Making budgets;
       
    • Goal setting;
       
    • Planning a vacation;
       
    • Education needs;

    Discussions like these will create curiosity and give them a perspective.

    Remember, children learn a lot by observing. So, be the best role model to your child.
     
Things You Should Avoid While Planning For Your Child’s Future
  1. Avoid procrastinating – The early bird gets a bigger worm! Any delay in planning for your children’s future would only lead to a short fall to meet their education requirements (whether in India or abroad).

    “Procrastination is one of the most common and deadliest of diseases and its toll on success and happiness is heavy.” - Wayne Gretzky (a former Canadian professional ice hockey player.)

    So, seize control over your personal finances today and invest wisely in the interest of your family’s financial wellbeing.
     
  2. Do not ape someone else’s investment portfolio – One man’s food is other man’s poison! So, avoid aping the portfolio of your friends and relatives. Replicating their investments may not work in the best interest while planning your child’s future. Sometimes it can prove perilous.

    “When it comes to investing, there is no such thing as a one-size-fits-all portfolio.”  -- Barry Ritholtz (an American author, newspaper columnist, and equity analyst).

    Each ones risk profile, investment objective, financial circumstance, investment time horizon, financial goals; are different. Therefore, reach out to a SEBI registered investment adviser for customised investment solutions.
     
  3. Avoid dipping into a portfolio earmarked for child’s future – To meet any other goal, do not dip into the portfolio earmarked for your child’s future – i.e. his/her education and/or marriage. Resist the temptation and be extremely disciplined in your approach.

    Dipping into investments to meet your child’s goals will result in a shortfall for their education and marriage needs.
     
  4. Do not compromise on other important financial goals – As you aspire the best for your child, there are other important financial goals which you may not want to compromise, above all your retirement goal.

    So, along with planning for your child’s future, focus on other goals as well by striking a balance between them. You may not be able to ignore one for the other.
     
  5. Don’t carry the “I know all attitude” Today's kids, have much more exposure than baby boomers had years ago. They are smart, sharp, observant, quick learners and tech-savvy. They know a lot more!

So, consider their views too while you aspire the best for them; as that may provide a better perspective while planning for their future needs.

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

Points to Remember…
  • Evaluate your child’s future needs wisely
     
  • Start planning, saving and investing early. It will facilitate you to compound wealth better and accomplish the envisioned financial goals comfortably.
     
  • Don’t ignore inflation as it can erode the purchasing power of your hard-earned money
     
  • Diversify your investments and take calculated risk
     
  • Avoid investing in an ad hoc manner
     
  • Know the tax implications
     
  • Remember, there’s no one  size fits all portfolio. So, avoid replicating anyone else’s investment portfolio.
     
  • Have a financial plan; reach out to a SEBI registered investment adviser to create a plan.
     
  • Insure yourself optimally, for both life and health
     
  • Keep your debt burden low. This along with prudent budgeting will leave you with a greater investible surplus.
     
  • Get your financial health check-up done regularly in the interest of your long-term financial well-being
     
  • Avoid dipping into the investment portfolio earmarked for your child’s future needs to meet any other financial goal.
     
  • Make your child money wise
     
  • (And last but not the least) Do not compromise on other important financial goals, while investing for your child’s goal.

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!)



Thank You For Participating!

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