A child’s birth is one of the most joyful and significant life events for parents. The birth of a child comes attached with a lot of responsibilities. The first and foremost responsibility for parents is to have their finances in the right place in order to take good care of the children.
The modern world has become such that everything runs on money. This has made it inevitable for parents to consider financial planning seriously. Putting your children into the right school, then into a prestigious college, and then enrolling them to a proper professional course is a costly affair these days.
The cost, as mentioned above, has given the parents sleepless nights of late. Thus, to meet the ever-increasing cost of quality education, your money must grow with your children. To meet the requirements of the child, it has become necessary to start investing early.
Starting to invest early for your children’s future has the following benefits:
1) You will have the time on your side to take risk
Let’s understand this with the help of a realtime example. When you leave early to the office, you will have the time to explore and find out the best possible route. If you start late, then you will have to stick to your usual way, which sometimes faces terrible traffic. You have no choice but to go in your usual route as you don’t have enough time on your side to explore the other possible paths. Similarly, by starting to invest early, you have the luxury to take a risk and find out the best invesment options that suit your children’s requirements.
2) You will unleash the power of compounding
The power of compounding is what that propels your frequent small investments to a substantial sum over time. By investing in options such as mutual funds which are powered by compounding, your money grows with your children. It gives your children the wings to fly to reach their destination. You can unleash the power of compounding to the fullest when you invest with a long-term horizon.
3) Stay ahead of inflation
While you work towards accumulating a considerable sum through investing, inflation works against you by reducing the worth of your investment. Inflation reduces your money’s value over time. Today, Rs 1,00,000 might be enough to put your child into a good college. But, ten years down the line, Rs 1,00,000 might not be enough even to put a child into a kindergarten.
4) Minimise your tax outgo
Setting aside a sum on a yearly basis not only secures your child’s future but can also give you tax benefits. Investing in the schemes covered under Section 80C of the Income Tax, 1961, gives you tax deductions of up to Rs 1,50,000 a year. The best investment tool to plan your children’s future is the equity-linked savings scheme (ELSS). You can save up to Rs 46,800 a year in taxes. While you plan your child’s future, you also save a considerable sum.
For any clarifications/feedback on the topic, please contact the writer at vineeth.nc@cleartax.in
Engineer by qualification, financial writer by choice. I am always open to learning new things.
