The only thing which is making our investments and financial planning ineffective is inflation because inflation depreciates the value of our money and if we do not invest in an investment avenue whose returns are more than prevailing inflation in the country, our monetary value will devalue eventually.
This is the most common concept we have heard these days as the inflation rate has reached its highest level of all time globally. But, when the government comes up with a number (%), they consider various items that we do not generally use or we can say the items which do not affect our lives in general majorly.
Due to this, our return on investment might change accordingly. Today, we will understand the sector of inflation that can affect the investment that you made for your child’s future.
READ MORE: What is inflation and why does it harm? An explainer
Healthcare Inflation
Your child’s health must be your top priority as parents, and you must have investment or insurance plans to secure your child’s health financially so that you do not have to compromise because of a lack of finances. In India, healthcare expenses are rising at the rate of 14% which is majorly affecting your investments.
You need to focus more on investments that are adequate enough to cover medical expenses if any unfortunate disease happens to your child. Insurance plans are the best way to protect your child’s health financially. Make sure that the sum assured is enough and in correspondence with the prevailing healthcare inflation in the country.
READ MORE: 3 ways in which inflation plays spoilsport in your retirement planning
Education Inflation
According to the Ministry of Statistics and Programme Implementation, India's education inflation rate climbed from 0.63 per cent in April 2021 and 1 per cent in May 2021 to 4.12 per cent and 4.09 per cent (provisional) in the corresponding months of 2022, respectively.
It becomes essential to make sure that your child’s higher education is secured even in your absence as well. Along with the investment avenue, ensure that the corpus is enough to meet your child’s educational expenses corresponding to the education inflation rate, which means your returns on investment should be more than 5%.
READ MORE: Here's how to beat inflation through step-up SIPs
Lifestyle Inflation
As we have explained in the introduction, the inflation rate announced by the government is not necessarily the same as your inflation rate, because of your adapted lifestyle.
For calculating your lifestyle inflation, you have to create a list of all the expenses that you made generally in the month and identify their inflation rate.
For instance, If you wear branded apparel only, you can calculate the price of the items and compare them to the previous years. This way, you will be able to calculate your personal inflation rate and spending habits as well.
Ultimately, your return on investment must be more than what is the prevailing inflation rate of that particular sector of the expenditure, whether it is healthcare, education, or your personal inflation. Your child should not have to compromise due to a lack of personal financial management or lack of improvement in investing decisions.
Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com
