Step 1: Start Early
While planning for your child's needs, it always pays to start early. This is because if you start saving and investing early, it will give you a larger time horizon to meet the goal and even build a bigger corpus.
Remember the old adage, “Rome wasn’t built in a day.”
Therefore, to accomplish the dream of getting your child married, begin saving and investing early —perhaps when he/she is a toddler.
Starting early has a variety of benefits:
✔ Permits you to take a relatively higher risk and invest in equity mutual funds and benefit from potentially higher returns in the long run
✔ Helps to benefit from the power of compounding; and
✔ Allows you to contribute smaller amounts regularly over longer periods
Now consider the case of Mrs. Gupta.
Mrs. Gupta has a daughter aged 2. She wants to create a marriage corpus that should be ready for her daughter in 22 years.
Currently, Mrs. Gupta imagines that she would spend Rs. 15 lakhs on her marriage if it were happening today.
So, let's ascertain how much she needs to save for her daughter's marriage every month to get her married after 22 years?
Daughter's Age
2 years
Cost of Marriage today
Rs. 15 lakhs
Time Left for Marriage
22 years
Inflation Rate
10% p.a.
Cost at time of marriage
Rs. 1.22 Crores
Amount Mrs. Gupta needs to invest per month
Rs. 9,516
You see, considering inflation, the corpus Mrs. Gupta would require for her daughter's marriage - after 22 years, will rise to Rs. 1.22 crores.
And to achieve the same, she will be required to make investments worth Rs. 9,516 every month, which can fetch a return of 12% per annum.
However, if Mrs. Gupta delays this investment, and starts to invest for her daughter's marriage after 5 years from now, she would need to invest almost double i.e. Rs. 18,464 per month.
Hence you see, the earlier you start investing, the less stressful it will be for you to achieve this goal.
Step 2: Rationally Estimate Wedding Expenses
Don't be carried away by societal pressures or affluent friends or neighbor's. Remember, each one's personal finances are unique. There's also no need to ape others blindly, as each one's financial circumstances/situations are different.
Therefore, focus on YOUR budget as there are other vital financial goals to fulfil as well like your child's education and your own retirement, among a host of others.
While estimating the wedding expenses, take into account the present value i.e. the amount you would have spent today on your child's wedding on a rational basis. Extrapolate the future value considering inflation and the time horizon before the goal befalls.
Then work out the periodic monthly investments you need to save in mutual funds via Systematic Investment Plans or SIPs. Keep in mind that the earlier you start this exercise, the less you would have to set aside and invest per month to accomplish this financial goal.
Step 3: Follow An Asset Allocation That Best Suits You
It is important to build a portfolio on the basis of your asset allocation. An ideal asset allocation is decided on the basis of various factors such as your age, income, risk appetite, risk tolerance, nearness to goal and so on.
A well-defined asset allocation is capable of dealing with different market conditions and helps you reach your goals in a systematic manner.
Different asset classes have different attributes. Hence, a mix of all or some is important.
For instance, equity is a must for your long-term goals. But you may include gold as an asset class which can be a hedge against uncertain times.
As the goal nears, you may rebalance your investment portfolio gradually towards fixed income or debt as depicted by the table here…
Asset Allocation As Per Years to Goal
Time Horizon
Equity
Debt
Gold
More than 10 years
50%
30%
10%
8-10 years
40%
50%
10%
5-8 years
30%
60%
10%
3-5 years
20%
75%
5%
0-3 years
10%
85%
5%
This table is indicative and for illustration purposes only. Invest based on your risk mentality and capacity.
A well-planned asset allocation helps to act as a shield to protect the portfolio value during uncertain economic conditions and market volatility.
Step 4: Invest Smartly To Build The Corpus
Mere savings won't be enough. Hence, you should invest in mutual funds via Systematic Investment Plan (SIP).
With SIP you inculcate the habit of regular savings. You systematically invest in funds over a period of time and eventually a corpus of huge amounts is built.
Investing in equity mutual fund schemes may prove rewarding if the time horizon for marriage is more than 5 years.
Step 5: Get Insured Optimally
As parents ensure that you are optimally insured for life. The demise of the breadwinner of the family causes a BIG setback to your dream of providing the best to your children. Therefore, as parents, ensure that you are adequately insured.
Use our Human Life Value Calculator to know the adequate insurance cover for you and your family.
Pure term life insurance plans may be considered to indemnify risk to life for the cost-to-benefit they offer and also prefer premium waiver benefit policies for minimum corpus needed in future .
Likewise, optimally insure for health, as not having an adequate medi-claim cover or not having one altogether, can potentially derail your financial goals if medical emergencies arise.
Step 6: Avoid Creating Any Debt
Agreed, weddings are once in a lifetime occasions and you want all arrangements to be perfect. But many experts are of the view that, if you take a sizable amount of debt for that one event of life which is going to take you years to repay, then you will be severely hurting your financial health. And even if you have to take some loan, make sure that you take only that much which is extremely necessary.
You see, it is imperative for us to realize that although marriage is the happiest moment of our lives, the cost associated with it can create a sour memory if not dealt with care.
Many parents are burdened under societal pressure and expectations and compelled to go beyond their means.
And in this bargain, they drain out most of their financial resources or worse even take loans. You need to understand that if you land up knee deep in debt by one of your children's weddings, then you are not only bidding a goodbye to most of your financial goals but also depriving your other child of the basic needs of life.
Some things which are a necessity to few are luxury to others. It is for you to decide what are your "need to have" things and what things can be "easily avoided". Once you have determined this, cutting down on extravagant costs will not be a difficult task.
Adopt a practical approach to all wedding related expenditure. For instance, if the means are limited, consider choosing an affordable venue, compromise on décor, limit the guest list; among others.
The last thing you should do is use credit cards or wedding loans for any large wedding expenses. It's best to avoid borrowing for a wedding. We will talk about wedding loans in detail in the latter part of the guide.
Instead, only use those funds you have accumulated via financial planning for this goal of your child's marriage.
Hence, it is important to not get carried away with emotions and plan your finances in advance.
There are several ways to make the wedding of your children the most treasured memories of your life.
Hence, determine a practical and realistic amount that you would need for your child's wedding. Once an amount has been decided, determine the future value of this amount (taking into account rise in costs etc.) and begin saving for your goal.
Remember that, the earlier you start saving and investing for your child's wedding the less you will need to set aside per month to achieve your objective.
Wedding Loan
It is important to understand why many fail at retirement planning. And one big reason is, they start late.
At times, individuals are unable to set aside the requisite amount of money needed for their retirement. They can contribute only a part of it, not all. As a result, they end up postponing their plans.
In our view, this is a wrong approach.
Instead, the right course of action is to start off with what you have and make up for the deficit at a later stage. On the other hand, if you decide to simply wait for an ‘opportune’ time, it might be too late by the time you start.
Another reason for failing to start is that a significant amount of money is often spent on providing for one’s present lifestyle, i.e. shopping and entertainment binges, leaving very little for retirement.
While the importance of satisfying present needs cannot be denied, it does make sense to take care of your future as well. Ideally, one must strive to strike a balance between the two.
Finally, perhaps, drawing up a strong retirement plan and saving for the eventuality – retirement. Maybe the thought of growing old and leading a rather sedentary lifestyle brings with it a certain degree of discomfort and discourages some from working towards their retirement plan.
However, such mindsets need to change.
Looking the other way will only worsen the situation. The solution lies in accepting retirement as an eventuality and being adequately prepared for it.
Making an early start is your best bet at being prepared!
To plan your retirement there are few steps involved. Each step is explained in the next chapter.
What is a Wedding Loan and how can it be used to finance a wedding?
Wedding loan is a personal loan issued specifically to meet your marriage expenses. Often the wedding expenses overshoot, and parents are compelled to borrow money from family or friends.
You can opt for a wedding loan without any hesitation. But as mentioned earlier, first rationalize wedding expenses and make sure you avail of a wedding loan only to an extent that's absolutely necessary.
Conclusion
Some things could be a necessity for a few, but luxury for you. It is for you to decide “what you need to have” and what can be “avoided”.
Stay away from mimicking, and instead focus on your budget/personal finances, in order to avoid debt and jeopardizing your family’s finances.
To get your children married, save for the financial goal, but ensure that you’re biting only as much you can chew.
Start planning for your goals early. A longer investment horizon can facilitate better power of compounding.
Rationally estimate the future cost of marriage, recognizing inflation.
Invest money systematically in mutual funds to achieve your goals.
Follow an asset allocation model by investing across asset classes like equity, debt and gold. Rebalance to debt as you approach your goal.
Don’t divert any investments already assigned for other vital financial goals like child’s education, your retirement for your child’s marriage.
And last but not the least, recognize the preferences of your children on marriage. They may not want to spend too much.
Happy Planning!
