The decision to take a loan changes the orientation of your life.
You no longer own it. You are owned.
— Dave Ramsey
As mature householders, we all aspire to be in the driver’s seats of our lives. Our ability to manage money and make it grow throughout our working lives is a major indicator of whether or not we have succeeded in staying on top of things.
However, if you have to take a loan for expenses like paying off your credit card bills or going on a vacation with your family or to pay for medical bills, it may be an indicator that you are not being financially prudent.
Due to ever-increasing fees for quality education, many parents end up either availing a heavy loan or taking some other drastic step, like reverse-mortgaging their home. This either puts them in deep debt or forces them to let go of other assets. This is a financially loss-making scenario any way you look at it.
Suggested Reading: How Ready Are You to Cope with Ever-Increasing Education Inflation?
Instead of being forced to compromise oneself financially, it is far more favourable and prudent to plan ahead and start saving small sums of money for fixed expenses later in life. For example, as soon as your child is born, keeping aside 7–8% of one's monthly salary for their higher education is a smart thing to do.
Moreover, since your salary is only going to increase from that stage of your career, this 7–8% will gradually become a mere 4–5% of your monthly salary. This is a comfortable proportion for something as important as the future of your child.
New-age child insurance plans have the following advantages:
- Targeted Maturity – You can buy plans that pay out large sums at the appropriate milestones of your child; for example, when they have to get admitted to a university.
- Continuity – Investments in gold, FDs, and mutual funds can be discontinued without a penalty. Due to this feature, it is very easy for people who have a financial crunch to either stop funding these investment tools or break into them. Contrarily, due to the unavailability of a discontinuing feature in child policies (without penalties), the habit of saving continues and you are invested for the entire duration agreed upon between the insurer and yourself. In a way, child plans do not allow you to move your eyes away from the larger goal.
- Guarantee – The rate of gold can crash at any time. The rates of FDs can crash or drop sharply too. And, of course, mutual funds’ returns are subject to market risks, which are unpredictable. However, child plan returns are guaranteed. Once insured, the pay-out is not dependant on external factors like markets and investor sentiments. This is why these plans are one of the best child education plans out there today.
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