Your bundle of joy brings you happiness when you enter your home and removes your fatigue in a second. And you want to ensure the best that is possible within your means to help him/her succeed. The journey poses some uncertainties which can be overcome through focused planning and a disciplined approach.
Here are the five things which can help plan a better journey for your children financially.
1. Set your goals in line with potential trends
Many a times the preparation is for a small goal. In case of the child, one of our clients planned for a domestic education based on his financial capacity. However, his child qualified for an international postgraduate education. Thankfully, loans were available from financial institutions which helped bridge the gap.
However, if he had an existing long-term SIP, he could have sent his son abroad without the liability of a loan. It is not a good situation to start off professional life with loans as that reduces the capacity to take risk.
Then there’s another client who buys dollars every month to provide for his son’s overseas education expenses. It helps him save quite a bit towards the end of the year.
2. Plan passive income for regular expenses
Today there are many expenses you have to meet for children as most of them go to ICSE/CBSE if not international schools. One of the top trainers in our circle shared his experience of conducting a month-long course on listening skills with an international school. Given the level of input, the additional factors do result in an increase in monthly expenses.
An example could be of one of our clients who has planned for an additional expense of Rs 30,000 per month using a mix of mutual funds and fixed income instruments. This helps him to stay at the curve financially.
3. Don’t dig into PF or retirement savings to fund education
Every goal requires three levels of savings. It is critical to not touch the core savings, otherwise at some point a weakness in the situation, mostly emotional, can create a potentially negative impact on one’s life situation by forcibly reducing expenses.
4. Move from equity-oriented assets to debt or hybrid
Many people make the mistake of letting their optimism get the better of them. Sometimes the markets do not react favourably and the fall creates a gap in the desired amount.
To reduce this possibility, you can initiate a systematic transfer plan two to three years prior to the requirement of funds. This protects the capital and then maintains it. This conservative approach has helped many of our clients transition favourably to achieve their goals.
5. Begin the journey
Many people think but do not act. This does not set a possibility in action. The idea is to think big and start small. Through a determined approach, one can initiate things which appear feasible and then grow from there.
Plan is not critical, planning is.
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