Arthgyaan

Supporting everyone's personal finance journey

Goal-based investing: How to save for children's future

Save for children’s schooling, college education and marriage via goal-based investing.

Goal-based investing: How to save for children's future


Posted on 17 Mar 2021
Author: Sayan Sircar
10 mins read
Get new post notifications on WhatsApp!

Save for children’s schooling, college education and marriage via goal-based investing.

Save for children's schooling, college education and marriage via goal-based investing

Every parent considers their children’s education to be their most important financial goal. After all, a degree from a prestigious institute like IIT, IIM, AIIMS, Oxbridge or MIT opens up unlimited opportunities. Similarly, a child may wish to pursue a career in arts, music, theatre, science or commerce from any global university or school of repute.

📚 Topics covered:

What are the typical goals for children?

  • School admission around age four
  • Miscellaneous significant expenses every few years (school trips etc.)
  • Undergraduate College at 17-18
  • Postgraduate College (2 years, timing unknown, > 23y)
  • Marriage
  • Down payment (a part of it) for their future house
Recent articles:
1 / 3
<p>A quick retirement calculation for a reader query who has a good amount of corpus already saved for retirement.</p>
2 / 3
<p>This article explains the PFRDA announcement about a new default scheme under NPS Tier II for government employee subscribers.</p>
3 / 3
<p>As per SEBI rules, mutual fund investors must have nominees in their folios by 1st October 2023 or explicitly opt out. Otherwise they will face restrictions in selling units.</p>

Join the Arthgyaan WhatsApp community: You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.

A typical example of children’s goals

We consider an eight-year-old child whose parents are planning for

These goals have been captured, and a goal-based investing calculator is used to calculate the investment amounts.

A few observations:

  • the goal value will increase with inflation over time
  • goals like a college education is not a single payment but a series of payments that begins with entrance examination costs
  • the further the goal, the higher the target corpus
  • the investment amount will have to be increased with time
Age Year Goal Description Cost today Target goal value Portfolio balance SIP amount (yearly)
8 2023       0 5.0
9 2024       5 5.5
10 2025       11 6.1
11 2026       18 6.7
12 2027       27 7.4
13 2028       36 8.2
14 2029       47 9.1
15 2030       59 10.0
16 2031       74 11.0
17 2032 Entrance Exam 2 4 86 12.2
18 2033 UG Year 1 6 13 90 13.4
19 2034 UG Year 2 7 17 92 14.8
20 2035 UG Year 3 8 20 92 16.4
21 2036 UG Year 4 9 24 90 18.1
22 2037       114 20.0
23 2038       143  
24 2039       152  
25 2040 PG Year 1 10 33 127  
26 2041 PG Year 2 12 42 90  
27 2042       96  
28 2043       102  
29 2044       109  
30 2045 Marriage 10 44 69  
31 2046       74  
32 2047       79  
33 2048       84  
34 2049 House 15 84 0  

In the example given above, the portfolio will look like this over time.

(click to open in a new tab)
Calculation of SIP amount for multiple goals

This post on estimating the cost of the degree shows how to get to the starting point of setting the goal.

How to estimate the SIP value for children’s goals

Prerequisites before starting to invest for parent

Things to know: what do and what to avoid

  • Avoid insurance plans: these have names with the words child, scholar, kid etc. in them: these are traps for parents to waste their money
  • Gold can be bought for marriage but not too much
  • Sukanya Samriddhi Yojana (for girl child) has 21-year lock-in and may be more appropriate for parent’s retirement than for UG education
  • An additional 150,000/year can be saved in a PPF account in the child’s name for 15 years

Read more on operational aspects of investing here: Should you invest in the name of your children?

How to save for goals

We follow the standard framework replicated here:

  • Decide the purpose (why), horizon (when) and cost of the goal today
  • Assume at what rate the cost of the goal increases yearly
  • Decide how much risk you want to take for this goal
  • Formulate an asset allocation suitable as per assumptions in the previous steps
  • Start a SIP in funds as per asset allocation and decide on a review frequency
  • On every review, see if you are on track and manage risk via rebalancing your portfolio.

This post deals in more detail regarding where to invest for children’s goals.

You can perform these calculations using the comprehensive Excel planner. In addition, please refer to this post regarding how to set such goals. This post deals with how to prioritize our retirement over goals for children and is a must-read if you think that you cannot manage every goal at present.

Does this investment process really work?

(click to open in a new tab)
Success Ratio for investing for 10 years

We have prepared a simulation using 26 years of market data in India to show the effectiveness of the goal-based investing process that shows how effective the process is for reaching close to the target. You will find more details here: What is the best way to invest for your child’s college education?

What's next? You can join the Arthgyaan WhatsApp community

You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.

If you liked this article, please leave us a rating

The following button will take you to Trustpilot:

Discover an article from the archives

Worked out case studies for goal-based investing

Previous and next articles:

<p>Save money monthly for significant known expenses via a sinking fund.</p>
Budgeting
Budget 101: How to save for periodic expenses: the sinking fund

Save money monthly for significant known expenses via a sinking fund.

Published: 8 March 2021

6 MIN READ


<p>Quickly figure out if you should prepay your home loan vs investing in the stock market?</p>
Loans House Purchase
Should you prepay your home loan or invest instead?

Quickly figure out if you should prepay your home loan vs investing in the stock market?

Published: 23 March 2021

5 MIN READ


Latest articles:

<p>This article shows a handy ready reckoner for home loan EMI amounts for all tenures and interest rates along with the amount of principal and interest to be paid.</p>
House Purchase
How much EMI do I have to pay for my home loan?

This article shows a handy ready reckoner for home loan EMI amounts for all tenures and interest rates along with the amount of principal and interest to be paid.

Published: 29 September 2023

1 MIN READ


<p>A quick retirement calculation for a reader query who has a good amount of corpus already saved for retirement.</p>
Retirement Reader Questions
How much money does this 39 year old investor need to invest per month to retire at 58?

A quick retirement calculation for a reader query who has a good amount of corpus already saved for retirement.

Published: 27 September 2023

7 MIN READ


Topics you will like:

Asset Allocation (20) Basics (8) Behaviour (10) Budgeting (11) Calculator (17) Case Study (6) Children (12) Choosing Investments (38) FAQ (6) FIRE (13) Gold (11) Health Insurance (4) House Purchase (17) Insurance (15) International Investing (10) Life Stages (2) Loans (9) Market Movements (13) Mutual Funds (29) NPS (6) NRI (13) News (9) Pension (8) Portfolio Construction (46) Portfolio Review (27) Reader Questions (6) Real Estate (6) Retirement (36) Review (12) Risk (6) Safe Withdrawal Rate (5) Set Goals (27) Step by step (14) Tax (37)

Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself
OR
use this quick and fast online calculator to find out the SIP amount and asset allocation for your goals.

Don't forget to share this article on WhatsApp or Twitter or post this to Facebook.

Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.

More posts...

Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.

This post titled Goal-based investing: How to save for children's future first appeared on 17 Mar 2021 at https://arthgyaan.com


We are currently at 299 posts and growing fast. Search this site:
Copyright © 2021-2023 Arthgyaan.com. All rights reserved.