Financial Planning tips for Your Child’s Education
We as parents can do anything for the personal and financial security of our children.Similarly,our parents must have planned to give us the best of everything.But,things have changed a lot since the past few decades may it be in the form of lifestyle,the inflation rate,the cost of living and above all the heightened competition in various fields.
The competition is getting tougher day by day.The hike in the fees of reputed educational institutions has increased significantly.That is not the only point of concern,the inclination of children towards private coaching centres further puts a hammer on the nail.This not only adds to the future education cost of your child but it means you have to be ready to shed a whole lot of money out of your pockets.
The questions that are a piece of worry for parents these days are :
Will they be able to meet their child’s higher education expenses in the long run?
What about the rising inflation trend?
How to cross the financial hurdles that might come in your child’s way when he grows up?
Will they be able to fulfil their child’s dreams?
The simple answer to all these questions is SAVE ,PLAN AND INVEST WISELY .
“An Investment in Knowledge pays the best interest”as said by Benjamin Franklin.
You just have to follow a systematic strategy and invest adequately to secure your child’s future.
Here we are discussing some tips,that might be of some help to the potential investors planning for their child’s education.
5 Easy Steps for Financial Planning for Child Education :
1. Early birds usually win : If you want your child to have the best and quality education you need to plan it systematically and that too at an early stage.It is good to see that few people plan for child education even before their birth.
After talking to few parents,we concluded that some of the parents whose children are just few months old or are in the preschool ,have a well thought out investment plan for their child’s future needs.Better to start investing as early as possible keeping your priorities and financial goals in mind.
To have an insight of Best financial planning tips at a young age go through 10 Financial Planning tips to follow in Your 20s !
2. Realistic Targets based on Inflation trends : Set targets as to what will be the future education cost for your child.Think practically, considering the present inflation rates and then calculate the estimated future cost.These days,there has been a considerable increase in the fee structure of primary schools as well.
e.g. Looking at the cost of higher education rising at 10-12% annually,an engineering degree costing 8-10 lakhs now will need around 38-40 lakhs corpus after a period of say 20 years.Similarly,the cost of various popular courses like medical,engineering or management and any other higher degrees has seen an increasing trend in the past few years.
3. Monthly Investment Plan : If started early,you just have to invest a fair amount every month out of your savings.A fixed monthly amount invested each month will convert into a huge corpus by the the time your child gets ready for his/her higher education.
Moreover,the earlier you start,the lesser amount of monthly investment you need to make.e.g. A monthly SIP(Systematic Investment Plan)of say Rs.7000 in year 2016 at a minimum return of 12% will amount to a corpus of Rs.75 lakhs after 20 years.
Checkout our most popular blog on Investing through SIP : How to start SIP in Mutual Funds – 10 Simple Steps to Follow !
Set up your own Systematic Investment Plan as per your convenience,risk appetite and Investment horizon.
4. Risk vs Returns : Risk and returns both play a pivotal role in planning your investments.Planning and investing for your child’s education is a long term objective, so it can build a balanced portfolio consisting of
- Risk free and fixed income generating investments
- Slightly riskier ones to reap higher benefits in the long period.
In fact,that is your personal choice as to the quantum of risk you can afford.
If you can widen your risk horizon,you tend to yield higher returns.High risk,higher the returns you can expect.
e.g.In case of equities there is high risk attached but you can yield high returns if investment is made for a longer duration.
But,if you are not amongst high risk takers and want to play safe,you should rather opt for safe long term investments like debt mutual funds where you can get decent returns with lesser risk.The alternatives like Fixed Deposits, Sukanya Samriddhi Yojana, NSCs are less risky and yield a fixed amount of returns.
5. Balanced Portfolio : You should opt for a balanced portfolio consisting of various schemes and financial instruments.Your financial portfolio is based on your needs and priorities.But,the same should be diversified rather than parking all your funds at a single place.
Avoid putting all your money at one place, since that might not give you the desired returns.
Here,we are talking about children education,so other than traditional options like fixed deposits, PPF ,NSC you should add financial instruments like Equity,Debt Mutual funds,Child education and insurance plans to your investment portfolio.
For adding a variety to your portfolio, also go through our popular blogs : ELSS Tax saving funds -Things to Know !
In order to simplify,the same has been explained with the help of an example.
Example : Mr.Raj who is in his early 30s and his daughter is 3 years old .While Mr.Sunil who is in his early 40s has a 10 year old daughter.Now,both want to start an investment plan for their children education.
Here,Mr.Raj has a longer duration to invest while Mr.Sunil has a shorter period of investment by the time their child pursues higher education.Here,we assume an average 10% rate of return.In this case,Mr.Raj can opt to have lesser monthly investments say Rs.6500 per month and he will have a lumpsum of Rs.50 lakhs at the end of 20 years from now.But,Mr.Sunil who has no choice but to make larger monthly investments say Rs.23000 per month approximately in order to get the same corpus of Rs.50 lakhs @10% average return.
Hence,delaying your investments will not only add extra hurdles in your path but also a make it difficult for you to accomplish your financial objectives.
To have a good financial plan for yourself and your family that too at the right time will definitely give you decent returns.
Your children are your world,so plan wisely,do proper research on the child education plans you are going to invest in, to give them a comfortable and secure future.
And yes….if you have already taken an education loan or are planning to apply for one for your child, do have a look at our blog post : Section 80E – Tax deduction on education loan !
Feel free to share your valuable thoughts as well…
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