Well friends, most of the times it’s an emotional decision for a couple to start a family but rarely we take stock of our finances before we actually take a plunge. Now lets try and understand the quantum of money required to be saved and invested to meet financial goals associated with upbringing of children. Let’s do it with a case study.
Assuming a person gets an employment at the age of 23 years in Dec 2018 after finishing his graduation and plans to get married by the end of year 2021(26 years of age). Couple enjoys their married life and decides to have their first baby by year 2025( four years of marriage) and second baby by 2027(six years of marriage). Let’s see how much money they would require to save and invest on monthly basis to plan for the future requirements of their two children.
In the above example we have seen that a proper financial planning is required to be done and required amount of money needs to be invested in an appropriate financial instruments( I have assumed 7.5% annual returns in debt instruments to include bank FD, PPF etc and 12% annual returns in equity mutual funds over a longer period of time). Although the requirement of funds seems to be high but with proper planning and regular investments, these targets can easily be met.
Moreover financial planning will help us decide weather to have two children or settle for only one . At this stage, it may not be out of place to mention the importance of retirement planning. Just to give an example if this person is spending Rs 25000/- per month today, he would require approx Rs 3.06 lakhs per month at the age of 60 years with an average inflation of 7% per annum. Assuming his life span is 85 years, he has to have a corpus of approx Rs 8.17 crores by the time he retires at the age of 60 years to sustain upto 85 years of age( assuming 8% of annual returns and inflation of 7% post his retirement). And to accumulate the corpus of Rs 8.17 crores, he needs to invest Rs 11885/- per month over a period of next 37 years upto the age of 60.( assuming 12% annual returns on investments)
So financial plan will not only help us achieve our financial goals but may help us take important life decisions too.