It is life's greatest gift - having a child, but we often forget to plan ahead, or sufficiently ahead for all the areas of a child's life where financial readiness is important.
Let's run through a list of areas – some big, some small, some recurring, some not.
- My child will be an engineer; or an Astronaut; or…
School (Kindergarten to 12th Standard)
Depending on your philosophy towards education it could range anywhere from INR 12K per year to INR 12 Lakhs. This doesn't include annual expenses that might fall into the nitty-gritty column like – uniforms, stationary, picnics, and so on.
Do not forget to factor in the commute charges which can be, in some cases, almost equal to the cost of tuition.
There are also additional expenses like SAT classes for an undergrad in the US, developing a portfolio for admit to a top class design school, entrance examination tuition, and the like.
It is very tempting to consider an education abroad, especially for under-graduation with the varied options that are out there. Again, the sky is the limit for this one.
We are talking anywhere from INR 20 lakhs to INR 50 lakhs per annum. And even if the expense might be a good 16-18 years away, “time does fly”. It is never, never too late to start saving now, instead of taking a loan at that time.
This is not to say under-grad in India is any cheaper. Private tuition and coaching classes might be inevitable. Currently, college fees themselves range from 2 to 3 lakhs per year for engineering to 7 to 15 lakhs per year for a medical degree.
All these numbers do not include cost of living expenses. You can easily add another 3-4 lakhs if your child is in a different city.
There are way too many factors and choices that decides what the annual costs of a post-graduation will be - from the number of years needed for a post-graduation degree of your child's interest will take to whether or not your child gets a scholarship to whether or not your child (who is no longer a kid, really) contributes to the kitty.
A good MBA college in India would cost around 10-15 lakhs as tuition fee alone. MBA outside of India can go as high as INR 75 lakhs or even more per annum based on which college your child gets admitted to.
- Weddings happen once in a lifetime
We are Indians and we have big fat weddings. Some of us really like it ourselves, others are pressurised into having one and a few of us take the low-cost court-marriage route. Again, it is difficult to say what your child will be like and what your mental make-up will be like 25-27 years from now, if not later. But, this is an expense that even our fore-fathers thought of well in advance.
- Life doesn't give you a second chance
Your life insurance coverage will have to go up obviously because there is another human being dependent on you. This in turn is going to increase your premium.
Also, you should get good health insurance coverage for your little one. If your employer provides a group insurance plan, make sure you top it up. All group insurance plans also offer reasonably priced top up plans.
Goodness forbid, if there is a time your child needs to be hospitalised, the sudden demand on cash availability will not be one of your major concerns. This is the cost of having financial peace at a time when your physical, mental, and emotional faculties will be over-taxed.
- The world is a book and those who do not travel, read only a page
Your travel cost will increase by 1.5 to 2 times just for the flights/train costs. Sure, there are concessions for children, but they aren't significant enough to factor in. As the kids grow into their teens, you might even have to go for another room when you travel.
- A hobby a day keeps the doldrums away
Some hobbies can really be expensive.
But, it is really difficult to ask your child to tone down their interest or talent because you cannot afford it. An average hobby class, at current rates, charges about INR 1000 per month.
Now, if your child takes to golf or scuba diving or photography, it will be a delight that you will need to account for now.
- The penalty you have to pay for having double income- paying for child care
Till about the age of 8, especially if both parents are working, you might need to either appoint extra help at home for the child or have the child go to a day care centre. This cost could range anywhere from INR 3,000 per month for day care to INR 8,000 for an extra maid. Again, we are speaking of broad averages.
- Smaller expenses that add up
These are the things that sound like petty cash compared to your child's education but they can soon add up. Here come those umpteen lost tiffin boxes and erasers, the birthday gifts for friends, the child's own birthday party, etc. Set aside a rough estimate in total for these. INR 3-5K per month per child should take care of this expense head.
For those who think it's not significant enough, here's a simple math. INR 3,000 invested in equity mutual funds (@14% equity returns) for 20 years will give you nearly INR 40 lakhs! Here's the calculator.
An unknown is exactly that, you really don't know what you will need it for. Always add a lump sum as a safety cushion.
This is by no means an exhaustive list. There might be expenses that are specific to your family and your child which you will have to add in.
Sure, there is nothing outright wrong with the sentiment of wanting only the best for your child. What if, you can make your best effort better by thinking a little ahead? Yes, it is a bit of an effort, but who ever said parenting would be easy?