Identify your goal
It is simpler to save if you know what you’re saving for. Having a clear goal about what you’re saving for – whether it's for your children’s college education or marriage – is the first step. Decision taken today will decide your child’s future at later stage. Write down each goal along with the sum you wish to save and a target date to achieve your goal. When you start saving, don’t be anxious about how much you can put away each month –what is important is to get started and keep going.
Start saving early
Time is the single most important factor to consider besides discipline. When you starting saving early for long term goals, you are in a position to make the most of the power of compounding. The more you delay, the more you have to invest with less time to meet your goals. If your child’s education is one of your goals, work out how much it costs today to study in your choice of field and factor in inflation. If you are thinking of an overseas education for your child, the cost of education in universities abroad will be considerably higher. Add to that the expenses of living abroad. This will give you an idea of the corpus amount that you will require in the future and enable you to plan towards it. With the steadily rising costs of living and continuously increasing inflation levels , it has become imperative to plan for the future.
There are many investment avenues that you can invest in to realise your financial goals. Each has its own unique risk-return characteristics. Investments in equities, fixed income, mutual funds, PPF, gold, FDs, and life insurance can be utilised at various phases of your children’s growth. Diversifying your investments will help you balance your risk and manage your finances more prudently.
As your family grows, day-to-day expenses only multiply and squeeze your monthly budget. The first step towards increasing your savings is to control your expenses. Identify how and where you are spending your hard-earned money. Try to control unnecessary expenses. Avoid using your credit card or other types of credit to meet expenses unless you have the capacity to repay promptly to avoid penal interest. The success mantra here is to save first and then spend, most people do it the other way round.
Don’t forget insurance
Buying a life insurance policy for child is always a good idea. While saving to meet the various needs of your children is necessary, it is important to understand that savings alone may not be sufficient in case of an unfortunate event. With the increasing cost of education and other expenses along with uncertainty looming over us all the time, life insurance however, is the only instrument which provides you the dual benefit of long term savings and protection.
Setting aside some money to handle financial emergencies is a wise thing to do. A contingency fund comprising of liquid instruments can ensure that your investments can be quickly converted into cash. The rule of thumb is to have enough funds to repay today’s bills plus living expenses for 3-6 months, however you along with some professional help will be able to come out with the exact amount.
For ensuring sufficient funds for your child's future, you not only need to invest systematically at regular intervals, but also provide for a security blanket to cover any unexpected event.
Early planning can help you translate the dreams of your children into reality. Be it education or marriage, your loved ones will get the best only if you are able to provide the building blocks for the castle that they dream to make.
The author is EVP and Head of Agency, Max Life Insurance