Budget 2020

Are you a ‘Gen S’ mom? Here are money tips to plan finances for your kids, parents

As ET Wealth completes 10 years, we present the compressed wisdom of this eventful journey. Here are the best stories from the decade on financial planning for your children.

Money tips for Gen S moms
How Sandwich Generation mothers— caring for kids as well as parents —can plan their finances.

Many women are in a position that can best be described as a ‘sandwich’. They are caught between looking after their kids’ and parents’ physical and emotional needs, besides the financial, medical and legal requirements. They are the Sandwich Generation. Or Gen S. Here are some important issues they should keep in mind.

Secure your own future

Focus on retirement: You have to keep aside a retirement kitty and not touch it. Equity is a good tool to realise long-term goals since it offers high returns in the long run. Start saving for your retirement as soon as you start working and supplement it with pension plans, EPF, PPF and NPS investments.

Buy insurance: Since you are earning and have dependants, be adequately insured for life. Buy an online term plan, which should be 7-10 times your annual income. Buy a family floater health plan, to cover your spouse and kids. Buy a separate mediclaim plan for parents and inlaws. Get an accident disability plan.

Build an emergency corpus: For eventualities that require immediate access to funds, have an emergency corpus. If you have a medical buffer for parents, keep a contingency corpus equal to 3-6 months’ of your expenses. If you don’t have a medical corpus, keep a bigger fund.

Seek out tax breaks: Since Sandwichers shoulder an additional financial burden, they need to increase savings. One way is to avail of all tax exemptions and deductions. Seek the help of dependants to maximise tax savings.

Invest more in equity: Since most Gen S-ers have long-term goals, utilise the potential of equity as it is the only asset class that can beat inflation.

Take care of parents

Buy health cover, keep medical buffer: Given the 15-20% rise in healthcare inflation, medical costs can eat into savings. Ensure your parents are covered before they retire. Avail tax deduction for paying the premium for your parents’ plan.

Manage post-retirement funds: Retirees prefer debt when it comes to parking their savings. But the corpus needs to grow at a rate to beat inflation. Put 15-20% of their corpus in equities, through mutual funds. The debt component can be invested in the Senior Citizen Savings Scheme and Post Office Monthly Income Schemes.

Handle their paperwork: Most senior citizens prefer to manage their own funds and document. Offer help where needed, without forcing your opinions on them.

Help them make a will: It is crucial that the subject is dealt with since it can lead to a lot of legal hassles later on and undue complications in the transfer of assets.

Plan for kids

Start saving early in equity: The best way to ensure you reach children-related goals without risking your own goals is to start investing in equity as early as possible. The best option of course is investing in mutual funds through SIPs.

Let them take education loans: If you run short of funds, opt for education loans. They help inculcate financial discipline and responsibility in the child since he has to repay the loan on getting a job.

Let kids fund their weddings, partially: With the financial strain of caring for kids and parents clearly showing on Sandwichers, it is a prudent move that will make children handle their own finances more conscientiously while relieving the parents of an additional burden.

Teach them financial planning: This one step will go a long way in securing your child’s future and ensuring that he doesn’t lean on you for financial assistance as an adult. Start early with the training, when the child is five or six years old. Continue this education till the child is 16 or 18 years old.

(Originally published on 9 May, 2016)

Save for your child’s education
Higher education costs are rising. Find out how you can accumulate enough for your child’s studies.

The class of 2018 of the Indian Institute of Management-Ahmedabad will pay Rs 19.5 lakh for the two-year course. This is 400% higher than in 2007. If the fees for the course continues to rise by an average 20% every year, it will cost roughly Rs 95 lakh in 2025. This sharp spike in fees is a wakeup call for parents saving for the higher education of their children. Find out what are the investment options before you depending on the age of the child.

An early start
The benefits of an early start cannot be stressed enough when you are saving for a long-term goal. If your child is 3-4 years old, you have a good 13-14 years to save through equity. Tanwir Alam, MD, Fincart, points out, “The multiplier effect in the power of compounding comes from the investing time horizon; longer time horizons have a higher multiplier effect.” Starting early also put lesser burden on your finances because it requires a smaller outflow. For instance, if your target is Rs 25 lakh, you need to save only Rs 5,004 a month if you start now. But if you wait for six years, you will have to invest `9,195 a month to reach the target. Wait for three more years and the required amount jumps to Rs 23,875. Worse, you may not be able to invest in certain assets if the time horizon is too short.

Medium risk if horizon is shorter
The investment strategy changes if your child is a little older. Since you have only 5-9 years to save, the risk will have to be lowered. The ideal asset mix at this stage is 50% in stocks and 50% in debt. Instead of equity funds that invest the entire corpus in stocks, go for balanced funds that invest in a mix of stocks and bonds.

If your risk appetite is lower, monthly income plans from mutual funds can be a good alternative. These funds put only 15- 20% of their corpus in equities and are therefore less volatile than equity or balanced funds. For the debt portion, start a recurring deposit that would mature around the time your child is scheduled to apply for college. If you are in the highest 30% tax bracket, avoid recurring deposits and start an SIP in a short-term debt fund. These funds will give nearly the same returns as fixed deposits but are more tax efficient if held for over three years.

It is also important to review the progress of your investment plan.

Low risk if goal is near
For parents of teenaged children, the investment strategy should focus on capital protection. With the goal barely 1-4 years away, you cannot afford to take risks with the money accumulated for your child’s education. The equity exposure at this stage should not be more than 10-15%. This shift from growth to capital protection is critical. The 3-4 percentage points that equity investments can potentially give is not worth the risk. A sudden downturn in the markets can reduce your corpus by 5-6% and upset plans. If you face a shortfall, don’t dip into your retirement corpus to fill the gap. Take an education loan with the child as a co-borrower.

(Originally published on 25 Apr, 2016)

Cost of nurturing a sports star
Sports-related expenses kick in when the child is young. Parents have to budget for that and school fees.

1. Cricket

For beginners: Rs 5,000-10,000 a month

2. Badminton


For beginners: Rs 5,000-7,000 a month

Intermediate level: Rs 8,000-12,000 a month

3. Football


Across levels: Rs 500- 3,500 a month

4. Rifle shooting


For beginners: Rs 3,000-5,000 a month

Intermediate level: Rs 15,000-20,000 a month

5. Tennis


For beginners: Rs 2,000-3,000 a month

Intermediate level: Rs 10,000-15,000 a month

Note: Estimates of coaches and industry experts; the amounts could vary widely across cities, suburbs, coaches and institutes.