Children’s Day Special: What comes first – Kids or Financial Planning?
14 Nov 2022
Are you a new parent? New parenthood is equal parts thrilling and daunting. The sudden emergence of diapers, wipes, and baby formula can throw you for a loop. While nothing can compromise this exciting experience, one can’t help but undermine the exorbitant expenses that are a part and parcel of parenthood. These expenses only scale up as years pass by and your child starts their education. So, to any new parent I speak to, my single resounding advice to them is always – start financially planning for your child’s future.
Before I dive into simple tips that can help parents financially plan, let’s take a moment to understand how the environment we live in now is vastly different from the one our parents lived in.
The professional and educational landscapes have changed at a brisk pace over the past few decades. While our parents had only a few conventional careers to choose from like Engineering, Teaching, Medicine, Banking, Chartered Accountants, etc., the new generation is spoilt for choice. The nature of careers ranges from a Statistician to an Equestrian. For kids today, as they say, the world is truly their oyster. The world is witnessing a ground-breaking advancement in career paths and kids are moving towards specialised education in various fields like data science, UI/UX, art therapy, master distiller, gaming analysis etc. Add to this the fact that more and more kids want to pursue quality education abroad.
This means, parents are in for significant expenses in the future as their children discover what they want to pursue. Therefore, meticulous financial planning is not only necessary, but mandatory. So, how can you approach this daunting task? It’s a bumpy ride but can be a ride worth taking.
On this Children’s Day, let’s take a look:
Take stock of likely future expenses
Generally, the cost component of conventional and non-conventional higher education will remain higher irrespective of the field of study. This cost will increase if your child decides on studying abroad. It is important to note that the cost of foreign education has increased by a whopping 20 per cent since 2020 and it stands to reason that it will increase further over the next couple decades due to factors like inflation and foreign exchange rate. Apart from tuition fees, there could be additional costs such as airfares, accommodations, extra curriculars, emergencies etc, which needs to be provisioned for.
So, your first task is identifying what could be the expense you are likely to incur in case your child opts for foreign education starting their graduation
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Holistic Financial Considerations are necessary
No financial planning can be done effectively unless looked at holistically, wherein you make consideration for your life events including emergencies. Several uncertainties can derail your financial preparedness for your child’s future. Any sudden illness in the family, loss of pay due to a disability or unforeseen event like a pandemic, death of the breadwinner and more could halve your savings or investments if not accounted for in advance.
Are your financial solutions agile?
Your kids will evolve as they progress through their formative years and quite naturally their financial requirements will also grow or change. It is important to remember that your financial planning is based on your best estimate of what your child might need. As they become their own individuals, your children will discover what they are passionate about and want to pursue as a career. So, your requirements might change at a future date, and you may need a higher financial corpus than you were planning for before. Therefore, the financial solutions you are buying must be agile and flexible.
There are some participating life insurance products available in the market now that can help you prepare for such risks. These products evolve as the customer evolves through life stages and offers significant flexibility in the form of freedom to choose the timing of the benefit pay out.
“For instance, assume that you have been building a financial corpus with the estimate that your child will travel abroad for higher education after they have graduated in India. But, in reality, they want to opt for a foreign education for their graduation itself (meaning, earlier than you anticipated). This essentially means your financial requirements have advanced by at least 2-3 years. In such cases, a participating plan like Flexi Savings Plan can offer a safety net and tide you through emergent expenses.”
So let me summarise with some quick-to-follow thumb rules:
● Have a thorough understanding of your goals and then start planning
● Look at all your goals holistically and not in isolation. Otherwise, your financial planning could turn out inadequate
● Relook at your financials at every life event to ensure if your financial plan requires any changes
● When making any future estimates, be conservative with cash flows and aggressive with expenses
● Ensure the financial solutions you buy are flexible and agile enough to incorporate your evolving needs
There is no ideal one-size-fits-all formula for financial planning; it’s a difficult task as financial requirements vary from one individual to another. This requires a smart, new-age financial solution that can truly manifest the Power of One and every individual.
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