Playstore Icon
Download Jar App

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

April 21, 2023

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 for your child's future.

Having kids is undoubtedly one of life’s greatest joys, but it is also one of the biggest responsibilities you have to undertake.

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

With smart investments and responsible spending, you’ll have enough in the bank to secure your child’s dreams.

Finding out what you hope to accomplish with their resources is the first step in investing. 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.

Balance your savings and spending by setting aside at least 20% of your income and only planning costs from the remaining 80%. With age, the savings rate can be increased even further. Saving money isn’t sufficient, though.

To generate profits and have enough for your kids’ education, one must invest their money.

Here’s how you must go about Saving Money if you’re earning around a lakh a month

Smart Investment Options

For instance, 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.

When your kid is younger, it is preferable to dedicate more money to equities.

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).

Now, heading back to saving for your kids:

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, 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. The earlier you start, the better.

Waiting for five 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 a Rs. 24,000 SIP and maintaining the same amount all through the tenure.

Investing in Children’s Education -Where Should You Put Your Money?

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 aims. This is because, in the long term, equities, and hence Equity Mutual Funds, outperform all other asset groups.

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, pushing the present leaders for the best spots in their respective fields. However, they are significantly influenced by difficult economic conditions, as seen by the performance of mid-cap funds.

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