The Best Financial Planning for your child's Education

The first thing that comes into our mind, whenever we start thinking about an investment approach is how much this investment will return. In other words, what is the ROI ( Return on Investment ) ? In case of pure financial products we look into the yearly interest yield. But here in our wealth management group, all we consider is your goal. We think, your investment should be driven primarily by your financial goal. Now what is this "financial goal" ? We like to say simply : "What is your plan with the money you invested in a financial product ?". This is probably a simple question, most of us can not answer quickly. Because whenever we do an investment or a financial planning, we generally forget about the simple question "Why we are investing the money ?". One of the generic answer is we want to beat the market inflation. We want to grow our money faster than value erosion of money. Yes, that is the base of all the investment we do. But every individual has different goals and priorities of life. And everyone should plan their finance accordingly.

Now once you are sure about your goal for a certain financial investment. Just quickly think about, how much time is left when you need that money to fulfil or achieve your financial goal. Once you know the answer of this two simple question : When & Why ?, you are done with more than 50% of your financial planning. Now you just need to select a financial instrument or a mix of different instrument and then need to invested in that for a certain period of time. Again, the time is a crucial factor in whatever investment you made. We have given example of compounding power of time, in our earlier postings.

So, with all these explanation we just want to find out, what could be a good investment portfolio for an individual who wants to accumulate some money for his / her child's education after 15 years from now. And again we consider the higher education is the primary area of concern for all of us and parents need a lot of fund during admission or subsequent phase of the higher education. Now 15 years of time frame is a long interval of time you can bet on. So, our straight forward suggestion will be to exposure in equity investment. As we have a long-span of time, we don't have to time the market. With a more than 10 years interval in our side, we can always expect good yield from the market (Specially domestic market in India). But we are not out right aggressive in our suggestion. So, we want a (7:3) ratio of portfolio diversification in equity : fixed instrument. Just safely assuming that, today for a quality Graduating education cost you a 7-8 Lakhs. With a higher side of inflation, this could cost you a whooping 29 to 30 Lakhs after 15 years from now ( A yearly inflation of 10 percent is considered.).

Now to ACHIEVE this amount we propose you to invest in Power Portfolio. To know about this Power portfolio check this link.

Plan your finance and invest early for your Child's Education.

Yesterday I was talking with Amit, one of my batch mate in college. And he is planning for her daughter's marriage. But I was so surprised that Amit such a young guy in his early thirties started thinking about his daughter's marriage so early ! I mean her daughter Sneha is only 2 years of age. So, I asked him what is his financial plan ? And what is his timeframe for marriage of her daughter? He replied, at least 23 - 24 years from now, and obviously until she completes her higher studies. I thought wow ! This is a perfect example of planning early and avoiding any unwanted financial crisis for her daughter's future. That's really great.

So, I was curious to know what  is Amit's financial planning for her daughter's graduation or Masters, as these higher education cost will be a substantial amount in coming years. And again I was surprised, to know that Amit did not really plan for it. But we can all understand that these are the milestones her daughter will pass through much earlier. Say, for college entry-level education, it is only 15 - 16 years away. And I think Amit needs a full proof financial planning for these education milestones of her daughter as well. It's a very normal mind-set of middle or upper middle class people, to set aside fund for their daughter's marriage. And without hurting that sentiment, what I will say is to create a fund for your child's higher education from the very beginning. The money you may accumulate every month or every year might be very small at the beginning. But with the power of compounding this amount can grow up to a very substantial value after 10 or 15 years from the day you start investing the small amount.

So, the biggest advantage we can get with early financial planning is time. "Time" is the important most factor in any investment. You might have liquid cash to invest or you might have access to good investment instrument at a given time. But you need to plan your finance before hand to get maximize out of your money or investment.

Let's look at a simple example given below to get an idea of power of compounding with time.

In both these cases you have invested the same amount of money. In first case 2000 Rs P.M. for 15 years which yields you a corpus of 6,93,413 Rs. Where as in second case 4000 Rs P.M. for 7.5 Years yields you a corpus of 4,93,293 Rs. So, though the amount invested in both the scenarios are same, it is very much evident that with time, the same amount can generate a much higher end corpus for you.

And that's why we say, "Time is Money !"

Power of compounding increases with time.

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Prepare with Mediclaim - Financial Planning before your child birth.

I think most of the well to do urban indians have a decent amount of mediclaim under their belt. If you have a corporate group mediclaim policy, then please go through the Maternity benefit clause under it. There is a high possibility that the maternity benefit is much less than the normal accidental mediclaim benefits. In that case, you need to prepare ahead of a child-birth. Either go for a mediclaim option which has a higher cap to maternity related benefits. Or else keep aside some emergency fund for your child-birth. In any case early financial planning does save your money and time, during an emergency.

So, in a nut shell :

1) Plan up with necessary  finance / fund requirement in advance.

2) Go through your mediclaim policy (Terms & conditions) for maternity benefits.

3) Set aside some finance for possible medical emergency which may occur post maternity phase as well.