Financial planning reduces future risks!
It also safeguards the family from unforeseen situations. And guarantees better returns in long run. Especially in India, the cost of education is a big cause of concern in the recent times. And for this particular reason, many families are struggling to bear the financial burden of formal education.
Back in the year 2019, more than 40% of the urban students in India could not complete class 10th because of the cost and other deficits of the education system. While the policymakers keep taking steps for the improvement of the education system. The smallest unit of the society (family) also needs mindful planning.
It is a fact that good financial planning can minimize the complexities of the future. And many families who miss out on this planning part often fall in the vicious circle of debts that go on and on for a long time. Considering online schools can sure save up on a lot of fees, but selecting an affordable school is not the only thing that matters in planning for your child’s future. There are many more aspects that you must plan for the secure future of your family and child.
You can reduce all these future complexities through a good financial planning!
5 Steps of a Perfect Financial Planning Process
1. The Planning for Fund Allocation
To start the financial planning for your child, you must take into consideration some important aspects. Check the cost of school education, and calculate the amount for the entire school duration (as per the current fee slabs). You can now divide this amount into years and further into months. The result will show the amount you need to save every month for your child. and repeat the same process for the graduation, post-graduation and professional courses years.
But this is not all!
Because every year the cost of education increases as per the inflation rates. Take a rough estimate of this rate as like 11 to 12% per year and add to the amount that you need to save. Other than this, you must also take into account other family liabilities that you need to address. So keep aside the amount from your family income that you cannot count for saving purposes.
Once you know the exact figure that you need to save, start looking for the right ways of saving this amount i.e. the long-term or short-term investment plans!
2. Laying Out the Investments Strategy (Long and Short-term)
Bank accounts, fixed deposits, public provident fund schemes, employees’ provident funds are some ways of investing money. You can use more than one option for planning purposes. And start saving a small or big amount as per your salary and family commitments. If possible, try to keep an emergency fund aside. Because it will help you to keep these savings untouched. And you will be able to collate a handsome amount by the time your child completes school education and enters adulthood.
If both you and your spouse are earning members of the family, it’s easier to plan. As you can keep aside one member’s partial or full income and allocate the other to carry on with the monthly expenses. All this can be decided mutually within the family.
Most of the insurance plans and fixed deposits are for the long term. But you can certainly invest in options like RD (Recurring Deposits) in case if you are looking for a regular small investment option. These are flexible but do not offer a bigger return. So you can add this option along with the other long-term investment plans. Make sure you check out the tax benefits in various investment plans. It will help you to make the most of these schemes and you will be able to save a considerable amount even after paying your taxes.
3. Safeguard Your Family From Uncertain Situations
Finances, crisis, relationship turmoil are all a part of our uncertain lives. Nothing in the world comes with a tag of surety. So it’s always better to expect the unexpected!
While planning your child’s future, look for the worst scenarios that can take a toll on the family. Plan ahead for uncontrolled events such as a health insurance and plans with options to withdraw the amount (at least a part of it). All this will help your family to combat adversities. And you will be able to tackle stressful conditions better.
As your child grows up tell him/her about all the financial planning. And do not forget to acquaint the child with the location of the digital and hard copies of these documents (such as LIC policies, fixed deposit receipts, etc.). Remember that in case of any unforeseen circumstance, your family and child should be able to access the required information seamlessly. Failing which it will be just like a useless amount of ‘UNCLAIMED MONEY’.
4. Secure Your Financial Moves
You must ensure that your assets are given to your child at the right time. Complete all the necessary formalities/documentations well in time so that your child is not deprived of any legal right even when you are not around.
Assign nominees in bank accounts, and do create a will for the property that you own. Make sure you also select the person who will take care of all this by the time your child grows up (a guardian). And do change these details in case of change in the family size (having another biological or adopted child). Do keep a track of your family income and plan with the new additions. And chalk out the budgets as per the overall household expenses (including the school fees).
5. Handling Exigencies Better
What better than citing the example of the past two years as the time of crisis or exigencies. 90% of the Indian families experienced a dip in family income in the past couple of years. In today’s world, our emergency funds are more important than ever!
Keeping aside an emergency quota/fund is a ‘need of the hour’. Because it will help your family to maintain continuity even when the circumstances are not in your favor. Try to keep this amount untouched as much as you can. And manage your time with the flow of regular income even if theirs is a single one coming at any point in time. There are chances that the employment status of family members changes with time. But make sure that you keep aside for the worst times and plan at least half a year through this amount.
This emergency quota will also save your child’s school year as you can utilize this money to pay the school fees even during a job/income crisis. So make sure you prioritize this point as much as the other steps in this regard.
Financial backing can help your family to escape the mental hurdles of tough times in life. This basic planning can help you to avoid regrets in the future. So make sure you do not miss out on these planning aspects to safeguard your family and child’s future.