How To Save Money For Your Child's Future?

If you have just welcomed your baby, are expecting one's arrival, or are even planning to start your family when you come across this article, you know bringing up a child is an expensive feat. You must be wondering how you should save money for your child's future?

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If you have just welcomed your baby, are expecting one's arrival, or are even planning to start your family when you come across this article, you know bringing up a child is an expensive feat.

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You have to be prepared for the expenses of the upcoming years. 

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According to an Economic Times survey, you are likely to spend 1.05 Cr on your child to give them a decent upbringing and education.

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At first, glance, arranging 1.05 Cr may seem like an impossible task, but it is possible. Define your investment goals, ensure disciplined planning, and harness the power of compounding.

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This guide will help you achieve this goal with ease.

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Stagewise Expense

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Stage 1 - Delivery & Postnatal Care - ₹2 Lakh*

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Before your baby is born, you must be prepared for its arrival.

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During the pregnancy, for doctor fees, scans, pathology tests, medicines, delivery, and mother's expenses, you are likely to spend approximately ₹1,50,000-₹2,00,000.

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When the baby arrives, you may have to shell out an extra ₹20,000 to make the home baby-friendly and its other necessities like food, toys, clothes, diapers, and postnatal vaccinations.

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Stage 2 - Infancy Period - 3.60 Lakh*

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Babies grow very fast.

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In this life stage, they mostly eat, play, and sleep.

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But remember that you have to take your child to doctor's visits for frequent health checkups and vaccinations. For that, you would need up to ₹1,500 for each visit and ₹70,000 for the immunization.

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Cans of your baby's formula milk for two years can cost you approximately ₹6,000 if we consider 50 cans for the first year and 20 for the second year, including nursing equipment for your wife. 

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You may have to throw family functions for a birthday or naming ceremonies, which could easily cost you ₹20,000-₹25,000.

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Also, set aside at least ₹10,000/month for a maid/at-home nanny if you and your spouse are working parents. Lastly, health insurance is a must as soon as your baby is born.

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Stage 3 - Toddlers' School Life Begins - ₹7.80 Lakh*

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This is the age when your kid starts going to preschool.

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So, naturally, your expenses will increase. In tier 1 and tier 2 Indian cities, the average preschool cost is ₹60,000-₹1.5 lakh annually. You'd also have to pay for school bus fare, project, dress, and other miscellaneous items.

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You may have to pay for a nanny to look after your child while you and your spouse are at work. 

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When it comes to health insurance, it's a must.

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At this age, the number of vaccinations gets reduced, but bear in mind that your child's immunity is much weaker. So, if they fall sick, you also must spend on healthcare.

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On the other hand, try to avoid spending too much on fancy clothes since they will grow up too quickly and the dresses will not see much use ultimately.

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Stage 4 - 6-12 - The Preteen Era - ₹29 Lakh

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Preteen age is the time in your child's life when they easily get influenced by their peers.

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So, don't be surprised when they ask you for the same kind of dress, accessories, or toys their friends have.

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In these years, your most significant expenses would be tuition fees, private tuition, and other education-related costs.

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In tier 1 cities, primary schools charge ₹1.25 -₹1.75 Lakh as tuition fee per annum, whereas middle schools, on average, charge ₹1.6-₹1.8 Lakh per year.

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Hence in 6 years of schooling, you'd have to spend 9.5 Lakh in total by the time your child turns 12. 

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You might not require a daycare or live-in nanny at this stage, but instead, you'd have to hire a maid and take your kids on vacation, which may cost you ₹50,000 on average.

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They would also like to go to their friend's parties or school outings. That's an added expense.

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Additionally, health insurance of ₹10 Lakh on floater coverage for a family of 3 costs ₹18,000 on average, which amounts to ₹1.08 Lakh for six years. Then there are food, dresses, and gaming devices.

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Stage 5 - Teenage - ₹20 Lakh

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Between 13 and 18 is an exciting time in every individual's life.

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It is when kids undergo an immense hormonal change in their lives.

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They hit puberty and gradually become much more self-aware.

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Experiences made and life lessons learned during the teenage year define your kid's personality. It is also when you must be prepared to shell out the big bucks.

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Middle school and high school are expensive. High school also costs up to ₹2.20 Lakh annually.

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Coupling all the additional school and coaching classes, it's safe to say you may have to spend ₹9 Lakh for high school education.

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Then it's time for college life. College admission is one of the highest costs you'd have to endure.

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Based on what your child wants to study, be it B. Tech, BBA, BCA, Medical, or any other course, admission itself may cost ₹2 Lakh.

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Also, this is the time when they would need a laptop. A decent model from a leading brand may cost you more than ₹50,000.

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Stage 6: Entering Adulthood - ₹43 Lakh 

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18-24 years define a student's career path.

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But for a parent, nannies, toys, and playdates get replaced by outstanding bills from your child's bachelor's degree and postgraduate degree colleges, high entertainment, and gadget cost, or credit card bills from trips with their friends, shopping, and night outs.

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If you have a decent money flow, paying off bills from your child's extra-curricular activities won't sweat you.

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However, when it comes to the cost of a bachelor's and master's degree, we are talking at least ₹10-₹15 Lakh (B.Tech) and ₹20 Lakh (MBA), respectively.

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If your child wants to study abroad, it can easily cost you over ₹1 Cr.

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In addition, you may have to pay for their accommodation if they are required to live in college hostels. That would cost at least ₹6-8 Lakh.

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Define Your Investment Goal + Opt For Disciplined Planning

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Don't get nervous about the expenses.

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Your child deserves the best life, education, and opportunities. As a parent, it becomes your duty to pave that path.

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Now that you have a better idea of how much money you should be prepared to spend, you have ample time to save.

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So, invest it smartly to benefit from the power of harnessing. 

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Hence, your first step should be to divide the total expenses based on the timeline you need.

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For instance, if your child is a newborn, you have 3-5 years to keep ₹7.80 Lakh. So, invest accordingly in the right medium.

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At the same time, we suggest you invest the largest sum first, i.e., your child's bachelor's and master's degree fees.

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Since the amount is large, you need to give your invested money ample time to grow. So, start investing immediately.

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Popular Investment & Saving Tools

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When you are saving money, you are not just saving for your child's future; you're also investing in your retirement life.

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Therefore, you examine how much money you would genuinely need to save. Then start planning accordingly.

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• Government Savings Schemes: The govt. of India offers many lucrative and safe savings schemes. It includes,

• Sukanya Samriddhi Yojana: It is one of the investment options for girl child with 7.6% interest; 21 years maturity tenure

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• National Saving Certificate: It is a government-backed form of savings account. 6.8% interest rate; 5 years maturity tenure; offers tax benefit under section 80C of the income tax act

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• Public Provident Fund: 7.1% interest rate; 15 years lock-in period; offers tax benefit under section 80C of the income tax act.

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• Mutual Funds: Mutual funds are currently the most beneficial investment options available. You can choose your favorite mutual fund to invest in based on your risk profile. 

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• Least risk profile, decent return: If you don't want to take too much chance with your hard-earned money and earn a decent return, you can look at large-cap blue-chip funds or index funds.

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• Moderate risk profile, decent return: If you are fine with taking a moderate risk, you can look at debt mutual funds, mid-cap funds, dividend yield, or ELSS funds.

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• High-risk, aggressive growth: Multi-cap/Flexi-cup or small-caps are good for those with a high-risk appetite and looking for maximum compounding growth in the least amount of time.

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• Gold: Gold is considered India's most trusted and safest form of investment. Due to its stability, high value, and easy liquidity, gold has been adopted as a preferred form of investment. Today, gold investment is not just limited to gold jewelry; you can purchase digital gold, gold ETFs, gold mutual funds, and, most popular, Sovereign Gold Bonds.

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• Small case: A new way to invest directly in the stock market without incurring its massive volatility is small case. These are a bundle of stocks that reflects an idea, a theme, or an industry type. 

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For instance, if you believe green energy is the way forward amid this rising global warming and want to invest in it, the Small case allows you to invest in the stock of the companies working in the green energy sector. 

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In the Small case, you can view the stocks in the portfolio, their proportions, and why they are included before making an investment decision. It is for you if you have average knowledge of the financial market. 

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• Stock Market: Investing in the stock market is subject to market risks. Many people would say the stock market is terrible, while others consider it best to compound your money in a limited period. Read all scheme-related documents carefully. You are living under a rock if you haven't heard of this disclaimer on TV. 

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But it is not as cakewalk as it seems. If you are interested in directly investing in the stock market, ensure you have ample knowledge about their nitty-gritty.

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Otherwise, it is best to take assistance and expert advice from a professional stock investor.

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Keep These Saving Tips In Mind

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When saving for your children, you want to be safe rather than sorry.

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But don't miss out on a good opportunity because it seems daunting.

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Some of the essential goals of your investment strategy should be:

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• ROI: Your investment should offer good ROI and a higher interest rate.

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• Inflation-Proof: When you are investing, the returns should be able to beat the ongoing inflation. Always calculate the inflation rate of your expected returns before deciding on your investment amount.

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For instance, during your toddler's preschooling time, you should have ₹7.80 Lakh.

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But this is the present value. Your baby probably will take 3-5 more years for that.

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So, the inflation rate of ₹7.80 Lakh after five years would be ₹10,28,155 and invest today accordingly.

• Risk Profile: Your risk profile should determine your investment asset allocation. If you are not a moderate or high-risk taker, you should be investing accordingly. If you don't know yours, there are many online tools you can use to determine your risk profile.

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• Tax Benefits: Although tax benefits should not determine your investment strategy. But having tax benefits under various sections of the Income Tax Act allows you to save much more.

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Conclusion

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When it comes to investing, the earlier you start, the better. It is just like the earlier you conceive a baby, the better your chance to give your child a good upbringing. By exercising healthy savings and investment hygiene yourself, you can also impart its importance to your children. To ensure they know money's and hard work's value, give them pocket money with a deadline and tips for budgeting and money management. They will thank you when they become parents. 

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