Don't underestimate the FINANCIAL NEEDS of your child

Bringing up a child today is no child’s play especially when it comes to financillay planning for their secured future. The school fees are growing by at least 10% year-on-year because of rising Consumer Price Index (CPI). So much so that fee structures of some premier schools resemble that of B-schools.

This just refers to the tuition fees. Then, there are other expenses to be taken into account — books, uniforms, etc. The co-curricular activities and creative classes are additional top ups, which jack up the total fund requirement.

But as parent, you don’t want to leave any stone unturned when it comes to preparing for this Herculean task of fulfilling your child’s dreams and needs.

Here's how you can brace yourself to deal with the periodic outgo without straining your household finances.

Choose the right investment

If you require funds in the short-term (1-3 years), you can consider investing in fixed deposits or FMPs. Once you pay the fees for one or two years, you will get an indication of the actual required amount.

Then you can build a buffer is needed for back-up expenses.

For long-term needs, you can do SIPs in equity mutual funds and invest in stocks, derivatives. Diversified index fund is another good bet for funding your child's education.

Add on costs to education

All work, No Play makes Jack a dull boy. The schools have taken this proverb literally as they all treat extra curricular activities on par with academia. This only means you have to earmark some funds for such activities, which include music, dance, abacus, art, sport etc. Every school usually gives out a projected expenses statement, which can help you plan your finances better. Likewise, summer camps, too, entail substantial costs. All this should be factored in while estimating educational expense. You can look at setting aside their annual bonuses in a liquid fund to meet such expenses.

Build an Education fund for Higher Education

To start with, work out some projections based on the child's age, current cost of education and the likely inflation rate.

Once you arrive at the ballpark figure, you can start making small and steady contributions to this fund. This will add up to a sizeable corpus over a period of 18 years when you child steps into higher education.

You can start drawing funds from this kitty when the need arises. You don't have to resort to the conventional practice of breaking FDs or liquidating other investments made for a different purpose. Typically, financial planners encourage couples to financially provide till the child becomes financially independent.