Three point agenda to financially secure the future of your child with special needs

In the article titled “General queries how to approach financial planning for a special child’s future” we discussed challenges encountered by families with individuals who have special needs. To put one’s mind to rest regarding concerns of the future, and fears about financial independence of your child, careful and mindful financial planning is the way to go. With proper guidance from trained financial advisors financial planning ceases to remain one of the challenges families need to worry about.

To simplify, financial planning is a process and not a tangible product to buy. The benefit of this approach is that it helps families in identifying possible gaps that may appear along the path towards a child’s future financial security. By implementing effective strategies one can bridge these gaps and manage finances well. Moreover, financial planning is a dynamic process that accommodates changes that come along in life during its course. This helps families in staying on course for reaching the objectives that have been penned down for the family’s welfare.

Please focus on the 3-step approach to financial planning which families may adopt to plan for their child’s future:

Step 1: Establish and prioritize your goals

Identifying life goals may be easy but prioritizing them is sometimes difficult. A simpler way is to divide these goals into categories that address their longevity, into Short, medium and long term goals. For instance, short term goals may include vacation or buying a car over the next 2-3 years. The medium term goals may focus more on the child’s education or buying a house, say after 4-6 years. Any goals beyond that may be listed under long term goals.

Similarly, it is essential to categorize your child’s requirements in order to ensure strong financial planning for your child’s future. This will help plan and prioritize your savings in accordance with your expected expenses. A clear probable picture of expenses will act as a guide to help you allot funds suitably.

• Short term goals: Finances for 2-3years that cater to your child’s requirements may be listed under short term goals. Examples of such short term expenses may include schooling expenses, follow up for therapies or medical checkups.
• Medium term goals: Expected expenses of a child for the next 5-7 years may be included under medium term goals. Expenses that can be categorized here may be for higher education, vocational training, assistive technology as the child grows up.
• Long term goals: Planning for expenses during the parent(s)’s retirement can feature as a chief long term goal. 

Step 2: Determining current financial status

As parents embark on the important journey of financial planning to secure their children’s and their own future, it is important to have a clear understanding of their current financial situation. This will give them an insight into future planning. 

A good way to start would be by asking the following questions:

• What existing resources do we have?
• Are the resources enough to provide for our child’s care, and for our own selves?

These questions may be answered by effectively analyzing the family’s current financial situation. 

This analysis assesses 2 parts- Net worth and Cash flow.

• The net worth part of the finances gives you an estimation of financial self-worth/value. Net worth is computed through a difference between your assets and your liabilities. 
  • The assets are what you own till date (your house, car, investments like mutual funds, PPF, personal savings) and 
  • liabilities (loans or liabilities) are what you owe to a third party. 

The difference between the two would give you your net worth.

• The other aspect of your financial analysis is the cash flow. This tells you the nature and extent of savings you are able to generate, which will become the main source of funding for your child’s care. Cash flow has 2 components-
  • Income– Income may be from different sources and includes the parent(s)’s earnings (salary), government support (pension for the disabled), and income from investments, any inheritance from grandparents or other relatives. All sources of income must be identified clearly. 
  • Expenses– A separate calculation of expenses of a child with special needs must be done to assess the overall financial requirements of the child. 

It would thus be beneficial to draw up two separate expense sheets – one that details family expenses and the other that itemizes the child’s daily living expenses.

The family expenses may be broken down into fixed and variable expenses.

1. Fixed expenses are those which are known to you and generally do not vary, like your household rent, utility bills, insurance premiums etc. 
2. On other hand, variable expenses will cover those expenses which you do not estimate or set aside each month, such as local or non-local travels, personal shopping etc.

The child’s expenses will include the cost of therapies, schooling, transportation, vocational training and everyday living expenses. Sometimes it’s hard to estimate this, especially in the beginning. Do not feel overwhelmed, and continue to monitor them for a few months and then draw up an estimation of these expenses.

Step 3: Identify potential challenges in the planning process

Once you are aware of your family’s finance requirements, you will be able to appropriately judge any gaps along the way. You may be faced with different scenarios.

1. You may be high on expenses and low on income, thus not effectively generating enough surpluses. 
2. Another scenario is that you are on the verge of retirement but the corpus accumulated may not be enough. 

Whatever the situation may be, a thorough analysis will give a clear picture of areas in your child’s financial care that need your attention. You can then take effective measures and build strategies to create a secure future for your child. 

Such intensive and foolproof planning will need time, thought and guidance. It is therefore crucial that we plan ahead in order to minimize financial stress and ensure that both the child and the parents have a financially secure future.

You can also read about drafting a letter of intent? – This one document passes on vital information about your child to the future caretaker.

DISCLAIMER: Please note that this guide is for information purposes only. Please consult a financial advisor for any legal consultations or advise pertaining to your needs.

If you’re seeking more information and guidance on this topic and related areas, Nayi Disha’s Know Your Rights (KYR) Program is here to support you every step of the way. By joining, you’ll gain access to valuable resources on government schemes, benefits, financial support, legal rights, and more, all aimed at securing a brighter future for your child. To learn more, visit our chatbot by clicking this link: https://bit.ly/4dJVCP3, or simply type ‘KYR’ on our helpline number 844-844-8996.