Alok recently attended the grand wedding of his niece. The five-day ceremony was fun-filled with musical nights and rituals, culminating in a regal wedding and reception at Goa. It set Alok and his wife thinking.
Their daughter Raima had just turned four. And her marriage is at least 20 years away. So they were wondering if they could afford a similar grand-scale wedding for her. More importantly, would they be able to do so without straining their finances?
Marriages might be made in heaven, but the expenses must be borne on earth. A practical step-by-step approach can help parents financially plan for their child’s wedding:
Understand if saving for your child’s wedding aligns with your money values
Saving for your kid’s wedding was a key financial goal once upon a time but saving for their education takes precedence almost universally. So before you embark on this project, understand whether this is something you would genuinely like to do or something you would want your kid to handle when they are an adult.
While anecdotally, most Indian parents would want to finance their children’s wedding, it’s not as cut and dried if we consider the future and your own financial goals. If nothing else, just think about it before starting.
Set a budget for the wedding
Weddings have become an elaborate affair these days. The marriage ceremony could last 4-5 days with a bigger budget. Rent for the hall, catering, and decoration costs increase as you stretch the days of celebration. Then, there are additional costs for hiring an event manager or a wedding planner. Besides, there is the usual spending on jewellery, clothes, gifts, and hair-dressers.
Trends show that many among the affluent are increasingly getting married in exotic locations like Goa, Jodhpur, and Andaman. Those with deeper pockets are also considering foreign destinations like Phuket, Bali, and Santorini.
First, figure out the type of wedding you are planning for your child. While societal and peer pressure can compel you to spend more, you need not keep up with the Joneses. Each one’s financial circumstances are different; arrive at a budget for a wedding based on your financial situation. An Indian wedding, on average, costs anywhere from Rs 15-50 lakh, depending on how extravagant you would like it to be.
At 10 per cent inflation, a wedding costing Rs 25 lakh would become Rs 1.68 cr after 20 years. So, ensure you factor in the impact of inflation while arriving at the financial target.
Start saving and investing early for the wedding goal
Thankfully, you need not invest all. Instead, you invest in equities and let the power of compounding work its wonders. By starting early, you also reach your child’s marriage goal faster.
For instance, if Alok and his wife start investing when Raima is four years old, they need to invest Rs 16,814 per month for the next 20 years in equities to accumulate a corpus of Rs 1.68 by the time she turns 24. However, if they delay investing by five years, they should invest Rs 33,295 to get there.
Get the asset allocation right for the wedding goal
Asset allocation is an investment strategy to balance risk and reward by apportioning a portfolio’s assets according to individual goals, risk tolerance, and investment horizon. Taking the above target of Rs 1.68 cr, if you were to invest 50 per cent of your portfolio in equities and the rest in debt, it would need a SIP investment of Rs 24,967 for 20 years.
However, if you invest 100 per cent in equities for 17 years and then convert the entire corpus into a debt fund, you need to invest only Rs 21,119 per month. In the latter case, equity gains would be taxed at 10%, while debt funds sold after three years attract a 10% long-term capital gains tax. It assumes that the balanced portfolio earns 9% annually and equities 12%. Leverage the power of equities to reach your goal faster.
Things to note
First, stick to the plan and target a specific financial goal without diverting retirement or other funds towards the wedding. A child’s higher education expenses typically come up 5-7 years before marriage. Ensure you have separate plans for both. Diverting retirement funds could compromise your financial status in the future or delay your goal achievement.
Lastly, ensure you are adequately insured – by taking a life and medical cover. Any misfortune could otherwise be a financial setback for your family. Any medical emergencies can also potentially put a spoke to your investment plan.
If you want to give the best to your child on their wedding day, fix a target, get the allocation right and keep investing regularly.