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How Much Should I Save For My Child's Future With 1 lakh Salary?

April 21, 2023

Table of Contents

    Table of Contents

      How much should you save per month for your child? Find out the recommended monthly savings and investment tips for securing your child's future starting today.

      Earning a 1 Lakh salary but skeptical about the investment you should make for your kids in this high-inflation economy? Read this blog to have an idea of how much should you save per month for your child.

      Nagpur-based- Ajay (52) and Deepa (43) are hardworking parents. Ajay works as an engineer and Deepa used to work as a teacher. They recently had to take up an educational loan and break their retirement savings to meet their children’s needs.

      “Our children Rohan and Nisha are both brilliant and ambitious kids. As they grew older, their dreams of higher education began to take shape. However, we soon realized our finances were not well planned, and cutting down on our expenses was not going to be enough”, said Deepa.

      Ajay added, “For our daughter’s high school education we had to break our retirement savings, and to pay off our son’s college fees we had to take a hefty educational loan as he wanted to pursue his B.Tech degree from Vellore”.

      Even though both Ajay and Deepa are well-educated, they failed to plan finances for their children’s future and an overwhelming sense of worry and anxiety settled upon them and they ended up taking debt.

      With things getting expensive and education costs rising yearly, you need to plan smartly and must be aware of how much should you save per month for your child.

      With smart investments and responsible spending, you’ll have enough in the bank to secure your child’s dreams. One can select from various accessible investment options depending on risk tolerance and goals.

      For those who make Rs 1 lakh per month, experts advise determining their precise take-home pay after tax plus deductions before calculating expenses.

      How much should I save for my child's future?

      When planning for your child's future, it is important to identify and categorize all of the necessary expenses. These expenses can be divided into three categories: immediate, short-term, and long-term.

      • Immediate expenses are those that need to be taken care of right away. This includes things like health insurance and an emergency fund. New parents must prioritize health insurance because it ensures that your child has access to medical care if they get sick or injured. 

      • Short-term expenses are those that will need to be paid for in the next few years. This includes things like child care and education. Education costs are rising day by day, so it is important to start planning for college or other post-secondary education as soon as possible. 

      • Long-term expenses are those that will need to be paid for many years in the future. This includes things like retirement and a wedding. A wedding can be a major expense, so it is important to start saving early if you want to have a grand wedding for your children.

      The question of how much should I save for my child arises in every parent. So, it is important to start saving for your child's future as early as possible. This will help you reach your financial goals and ensure that your child has a secure future.

      What is the best way to save money for your child?

      Smart Investment Options

      Investing in Equity Linked Savings Scheme (ELSS) products is a suitable choice if people still owe taxes in excess of 80C. The shortest lock-in period for any tax-saving instrument is three years, which applies to ELSS funds.

      Another choice is to invest 20 to 30 percent of your take-home pay after paying all necessary costs. Depending on the investor’s age and stage of life, you can put this into diverse stock mutual funds or a combination of equity and debt funds.

      Additionally, if you earn an annual bonus, you may invest half of it in debt funds. This can be used as an emergency fund to cover unforeseen financial needs. Create an emergency fund that can pay for at least three to six months’ worth of costs (including EMIs).

      If your investment returns are assumed to be 12% annually, and you need a goal corpus worth Rs. 1.25 crore over the next 15 years, the monthly SIP amount you will need to reach this goal is around Rs. 25,000.

      With that amount, you’ll have a decent chunk of change in addition to paying for your children’s education goals.  

      You could be tempted to delay starting and wait until you have additional money to invest or find more a feasible answer to how much should you save per month for your child as this is a sizable sum to dedicate to just one objective.

      It is, however, a bad idea if you choose to defer this by even 5 years. ‍Waiting for 5 years will need you to put up almost Rs. 53,000 each month because that’s how compounding works. That is more than twice what you would need in terms of SIP today.

      The wiser course of action is to start with as much as you can and gradually increase it each year.

      Start small and gradually raise the SIP amount each year

      The secret to investing is just to get started.

      Start investing everything you can, and raise it by a set percentage every year. In essence, you increase your SIP when you receive an increase.

      You can quickly meet your investment objective with this modest rise.

      In the example mentioned above, one might attain the desired amount with a monthly SIP of Rs. 17,000 with a rise of 10% every year as opposed to starting with Rs. 24,000 SIP and maintaining the same amount all through the tenure.

      How much should I save for my child's education?

      For most of us, our children’s university education is a long-term objective that may be 10 to 15 years in the future.

      Equity mutual funds are the finest investing option for such long-term goals

      But how much should you save per month for your child? That depends on your child's age, the expected cost of education, and your own financial situation. However, a good rule of thumb is to start saving early and invest regularly.

      You may now assess the following fund types within Equity Mutual Funds:

      Flexi Cap Funds - Flexi Cap Funds Invest in businesses of various sizes and across industries. As a result, you receive a broad mix of some of India’s greatest firms. Furthermore, because Flexi Cap Funds have no restrictions on where and how much they may invest, their portfolios are constantly altering in response to market conditions.

      Large and mid-cap funds - Large and mid-cap funds invest the vast majority of their capital in India’s top 250 firms. These funds profit from the relative stability of large corporations and the expansion of mid-sized enterprises. This structure results in a mix of India’s largest and mid-sized firms.

      Mid Cap Funds - If you are ready to accept instability in returns over the short to medium term in exchange for a potential to achieve high returns, you might explore Mid Cap Funds. These funds make investments in India’s mid-sized businesses. 

      Companies in this category are often the fastest growing in India. However, they are significantly influenced by difficult economic conditions, as seen by the performance of mid-cap funds.

      So, invest smartly, and you’ll soon have enough to ensure your kids have a secure future! Good luck.