Children are the usually the fulcrum of a parent’s life. Most parents dream big for their children, but there is difference between merely dreaming and working towards attaining this dream.
Did you know that the current cost of higher studies for your children could grow exponentially in future owing to inflation and rising costs? Or that the cost of the lavish wedding you want for your child could skyrocket in the future? You need to make your hard-earned money work towards securing the goals you have in view for your children, rather than simply putting money in a traditional instrument where its value may actually shrink on account of inflation. This month, as we celebrated Children’s Day, we thought of delving in detail on financial planning for children’s goals, and how early and disciplined investments can help you achieve their long-term goals.
Invest based on goals…
The first step, and most important step, is to transition from a haphazard approach to savings to a scientific, goal-based investment strategy. By doing so, investors can plan their finances effectively and invest based on their risk return profile and investment horizon.
…to turn dreams into reality
Goal-based investing involves putting aside money to achieve specific goals at different stages of life. This scientific approach helps avoid the common pitfall of an inadequate corpus for the child, which is usually owing to haphazard investments in a plethora of child plans or traditional instruments or starting too late in the investment lifecycle.
In goal-based investing, an investor allocates money to different asset classes in sync with a person’s risk capacity and time horizon, preventing any under or overexposure to any particular asset class. Further, investors can use new-age investment instruments such as mutual funds, which provide a variety of options to invest based on the goal horizon. For the best results, parents should invest systematically, regularly and in a disciplined manner through options such as the systematic investment plan (SIP).