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NEW DELHI : I want to secure my child's future. I don't know how much amount is required for my child's education when he will turn 18. Currently, he is six years old? How should I do his financial planning?

—Name withheld on request

You need to plan for child’s education depending on the kind of education you want to provide. What is the aspiration? The goals need to be clear as then the financial road map can be drawn. At the same time, you need to careful about inflation as this in long term can seriously impact your wealth creation. You need to work on your cash flows and determine how much can be set aside on a regular basis read monthly to provide for the child’s education corpus. As the goal is long term i.e., there is still 12 years to go, the asset classes which has the potential to outperform inflation are to be considered. And disciplined approach is the key to create the long-term corpus to take care of his education goal.

 

I have heard from many people that for equity investments, long-term investment horizon is required. But what does long term mean? When should I start planning for my family's financial goals? How should one go about it I have no idea?

—Navneen

 

Financial planning is to be started immediately when you start earning. However, it is never late to start planning. But yes, the early you start the better it is as then compounding works in your favour. And to start with you need do up your cash flows—surplus of income over expenses are to be determined and that is the amount that needs to be put aside for investments. But where? here you need to draw your financial goals and subject to the horizon for goals/needs the investment needs to be structured. Short-term goals—the money you need in short term and hence the investment for this goal should also be short term so say, if you need funds in two years you cannot invest in an investment product meant for five years. Likewise, the short-term goals cannot be invested in risk assets read equity as equity asset needs a longer percolation period. So, a long term for equity can be defined as a minimum of five years but ideally eight years and more.

And this needs to be regulated on real time basis as the goals changes and the investments need to be monitored on a pro-active basis.

Surya Bhatia is managing partner of Asset Managers. Queries and views at mintmoney@livemint.com.

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