Every parent wishes for the best. Not only does one want the child to have a sound education, but also wants a grand wedding. In order to fulfil these desires, it is imperative for one to follow the right approach towards planning for the important financial goals.
While planning for the child’s needs, it always pays to start early. This is because if one starts saving and invests early, it will provide a larger time horizon to meet the financial goals (in this case marriage) and build a big corpus.
Mrs Gupta has a daughter aged 3. She planned a lavish marriage for her daughter at the age of 25 years which costs Rs 25,00,000 then. Financial planner advises her to invest in a fund which generate return of 12% p.a. Inflation rate is 6% p.a. How much would she need to save for her daughter’s marriage every month to get her married after 22 years?
|Daughter’s Age||3 years|
|Future Cost of Marriage after 22 years||Rs 25 lakhs|
|Time left for Marriage||22 years|
|Inflation rate||9% p.a.|
|Present Cost of marriage||Rs 7,44,513.45|
|Amount Mrs Gupta needs to invest per month||Rs 7,628.57|
Thus an investment of Rs 7,628.57 every month (assuming it earns a return of 12% per annum) will help Mrs Gupta to realise this financial goal. However, if the same investment is delayed, and started after 5 years from now, then she would need to invest more ie Rs 10,787.08 every month.
Not Planning for your Children’s marriage ? You will end up your affecting your other Goals
To understand this, let us suppose that at the age of 50, Mr X has Rs 50 lakhs in the retirement corpus. However Mr X has not saved enough for children’s marriage. Hence it is very much possible that Mr X might consider dipping into retirement corpus to fund the child’s marriage. But unfortunately, dipping into the retirement corpus means that one is breaking the process of compounding.
Basically, it means that one will not have ”planned” a retirement corpus as he/she has targeted,. And it might become a habit too. A person might consider doing it again when in need of money for some other purpose .
For most parents, child’s marriage is something that they will never compromise on. But despite recognizing the need to save for their children’s marriage, most people do not take timely action towards it. Such parents either end up taking loans, sell land or worst, take money out of their retirement corpus.
How to Plan for Child’s Marriage? – A few basic steps and points to consider
- Find out the amount of money needed for children’s marriage. For that, one needs to take into account current cost of money that is needed for marriage expenses. And it is always better to use a higher inflation figure while doing the calculations.
- Next one needs to calculate how much is needed every month to invest to reach the target. While calculating the amount to be invested each month, one need to take into account the expected returns the investments will generate.
- Suddenly due to unfortunate circumstances if the parent dies – this risk needs to be covered too. So it is a must to make sure that one buys adequate insuranceto cover planned expenses of children (like marriage) and ther important goals. We at Dilzer follow a scientific approach to need based insurance analysis considering the above. Of course this is in addition to the coverage one needs to have to cover for everyday expenditures of the family and to replace the income. Hence by supplementing the investment portfolio created for the children with adequate term insurance, one is able to meet the objective of protection without having to pay for heavy charges and commissions.
- Begin the process of saving and investing early.
- The financial decisions which determine the asset allocation and portfolio mix should be backed by the risk tolerance level (Income, Expenses, Financial responsibilities etc.) and risk appetite (Age, Past experience etc.)
- Never dip into the funds saved for other priorities (Retirement, Medical expenses, Housing rent etc.) to fund a child’s marriage. It would be sensible to plan finances better, preferably with the help of an expert financial planner.
- Evaluate characteristics and viability of investment products before making any investment decisions .
- It is prudent to keep investments and insurance separate.
Investment avenues for saving money for Child’s marriage
Nowadays, many parents save for meeting various needs of their children, but it is important to understand that saving alone is not sufficient. Saving money in the savings bank account will not earn high returns, and will not be sufficient to create the necessary corpus to meet the financial goal of marriage/other needs. Hence one must select the right investment options so that the portfolio progresses towards each of the financial goal set for children’s better future.
A few options are:
- Sukanya Samriddhi Scheme
- Gold (Long Term)
- Risk cover to protect future goals/Term insurance
- Equity Mutual Funds
If a person chooses a plan that can empower to accumulate wealth, one can stop worrying about the finances needed for major events of life – the child’s grand wedding being one of them.
Debalina Roy Chowdhury