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6 steps to securing your child's financial future

Last updated on: September 28, 2010 07:57 IST

6 steps to securing your child's financial future

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As a mother of two, my mind is never far from my children. I worry if they are happy, if they are meeting the required marks/ measurements for their age group, am I doing the right things at the right time to help them as they are growing into young adults, etc.

The list goes on and on but the thing that remains the same is my devotion and love for them. I know that one of the best ways to show my love and support is to have a secure financial plan in place for their future.

Of course, starting early is a key factor, but don't worry if you do not have a financial plan for your child in place now. There is no better time to get started then the present!

So if you are a young parent, take a look at some simple steps to securing your child's financial future.

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Photographs: Uttam Ghosh/Rediff.com
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Be clear of your objectives

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Like any other type of financial planning, you have to know what your goals are and how you plan to achieve them. You can easily do this by thinking of the things you would like for your child ie education, marriage, schooling abroad, travel, capital for a business venture, future housing, etc.

Another thing to look at having in place for your children is a trust fund, in case anything should happen to you. A trust is a legal document that ensures the specific wishes of the person funding the trust are met. Due to the strong support of family, a trust fund is not as popular in India as it is in the Western cultures.

Prepare and implement your plan

Keep each goal as a separate account. By doing this you will be clear on how much money is in each account and if your goals are being met. While selecting funds keep in mind that funds for your children are long-term investments and should be handled as such.

This is an investment plan for your child's future and each goal will have a specific timeframe. An example would be that education expenses would come before a marriage, marriage would come before housing, etc. As you set up your savings and funds, take into consideration the following things:

  • Age of your child right now
  • How long will it take for the investment to mature?
  • Cost of inflation
  • Estimated date that the fund will be needed

Once you have these questions answered, you're ready to start investing!

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Smart investment choices

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As with any financial plan it is smart to have a well-rounded portfolio. Since children have long-term investment horizons and the risk appetite is high, a child's financial portfolio should have a majority of high-growth equity funds, preferably through SIP routes.

You could also include some fixed income options such as bank FDs, debt funds, company FDs, bonds, NSC, PO MIS, etc. By creating a diversified portfolio you will ensure substantial corpus for your child's education, marriage, etc as they grow.

Track your investments

There is an old sports saying, "Keep your eye on the ball". The same is true of your financial portfolio. It is important to keep track of your investments and make any necessary adjustments if required.

You can do this bi-yearly or have an annual financial portfolio review day. Set it up in your calendar/ diary to make it more than just a good idea. You'll thank yourself later!

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Use the advice of an expert

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The only stupid question is one that is not asked and a financial planner can answer any of your questions or knows where to go to get the answer.

When choosing a financial advisor, they should be qualified, objective and unbiased in their advice.

No 'dipping'

It is easy in times of emergency to "dip" into our children's education fund. The mindset being that it is not needed until many years down the road.

We dip with the good intention of returning the money right away. What we don't realise is that the structure of the fund is to mature over time and in order to effectively do this it needs to stay intact. So, a simple rule, no dipping!

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And at the end of the financial rainbow

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By investing today and being diligent in your investment tracking you can reap the "pot of gold" at the end of the rainbow.

It might be the look of pride on your child's face as they graduate from college or the sweet smile of a bride on her wedding day. Whatever the goal you are aiming to achieve, you will have the satisfaction of knowing that your smart financial sense turned your child's dreams into reality.

As a parent it does not get much better than that!



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