Spend, Save and Invest Smartly

Financial Planning for a Couple with Children



Children are the greatest gift in one’s life and instill a sense of responsibility. One’s child has dreams and aspirations. These dreams and aspirations become one’s own dreams and aspirations. If one has any unfulfilled dreams in life he sees his children complete them. One’s child might want to be a doctor or a pilot and the job of the parent is to ensure its success. Would one want to see his child’s dreams be castles built in the air for lack of money? No definitely not. In these inflationary times children’s education and marriage costs have hit the stratosphere .A dreaded thought comes to mind. What if one is not around to meet the higher education and marriage expenses of his children? Remember whatever excuses you may have for not buying life insurance now will only sound ridiculous to your widow.

How is financial planning done if one has a young child?

Financial planning is all about ones risk tolerance. Risk tolerance depends on age and what stage of life one is in. One does not expect a 60 year old to go white water rafting or sky diving. This is a game for the youth. In a similar way maximum risk in risky investments is borne when one is young. When one is married and his children are young he takes risks by investing in equity mainly equity diversified mutual funds which give high returns beating inflation. Risk is minimized to an extent owing to diversification benefits. If one’s child is young say around 3 years of age the time horizon would be 15 years where funds would be required for his higher education or a daughter’s marriage. Investing in equities with a long term outlook especially if one has time in hand lead to a huge corpus. This gives sufficient time for one to enjoy the benefits of compounding. However remember to keep one’s spouse in the investment loop. Any investment decision post marriage needs to be a joint decision. This fixed responsibility on the couple. There is no scope for the blame game.

The need for child insurance in ones financial plan

One of the most common insurance plans which can be taken to secure one’s child’s future is the children’s endowment plan. One of the unique benefits of a children’s endowment plan is it has both protection mainly a death benefit as well as an investment benefit. If one dies before the maturity of the plan or when ones child is still young the sum assured is paid up by the insurance Company. If one is still alive when the policy matures the sum assured is paid out along with a maturity bonus at that point in time. These policies also have a with profits plan where a periodic bonus is paid out which enhances returns from these plans.

What is unique about child endowment insurance plans not present in other insurance products?

One must opt for a waiver of premium rider in the child endowment insurance plan. In an ordinary child endowment plan one pays the premium amounts and obtains a sum of money called maturity amount at the end of the policy term. If one were to die before the maturity of the policy the sum assured as well as any bonus accrued till then would be paid immediately. So what is special about a child endowment plan with a waiver of premium rider?

  • One pays a slightly higher premium than a regular child endowment plan and takes up this policy.
  • If one were to die before the maturity of the policy one’s child who is the nominee would get the sum assured.
  • The insurance Company would pay the remaining premiums on ones behalf after one’s death and continue to keep the policy in force.
  • On maturity of the policy a second payout is made. This is a guaranteed lump sum amount. The insurance Company pays one’s nominee a second time.
  • Remember in this policy one’s child gets paid twice. The first payout is at the time of one’s death. The second time is when the policy matures. The added benefit is that the insurance Company bears the premium burdens after ones death and his child’s education and career is secure.


The need for financial planning to save for one’s daughter’s marriage

  • A major decision one and his spouse need to make is to save money for their daughter’s marriage. The key factor in this decision is one of timing .Earlier one starts making his investment plans greater would be the corpus available for the occasion and one would have additional time to make an alteration called course correction in the investment portfolio. So when does one and his spouse start their investment to save money for their daughters marriage?
  • A financial goal is clearly defined as having a financial value and a time frame .In case of one’s daughter’s marriage the value of the financial goal is the sum or the amounts required for the marriage. The time frame is the time period from which one starts his investments up to the occasion for which the money is required mainly one’s daughter’s marriage.
  • If one and his spouse start investing early when their daughter is very young say 3 years of age the time frame is about 15 years. One needs to invest in equity instruments mainly equity diversified mutual funds as the term period or term horizon is long. For a long term outlook equities are the way to go. If both one and his spouse are working equity linked savings schemes are a good investment as they also have tax saving benefits. As the goal nears, in this case the marriage of one’s daughter the invested amounts need to be shifted from equity to a debt instrument. This protects the corpus from fluctuations in the share market. One and his spouse might also have to plan for their daughter’s education. Making a separate investment plan for this goal is necessary.
Financial Planning
Tax Planning
Investment Planning