Education in today's world has become a money minting business. Hence planning for children’s education is the most important financial plan one requires in order to cater seamless execution of your child getting admission to their most admired college. For the last many years the cost of education has grown drastically. The inflation attached to children’ s education is different from your normal CPI (Consumer Price Index) or WPI (Wholesale Price Index). It is hence of utmost importance to plan for your child’s education and start as early as possible so that you get enough time to create the corpus which will be required at the time of Higher Education.
While doing your financial planning, a child’s education should be your priority.
I have broken down the steps for your child’s education below.
Step 1: Select Target Date – Depending on the current age of your child and the time left for higher education, select a particular year when the corpus for education will be required. It will define the set number of years left for achieving the target. For Example, in 2020 if your child’s age is 3 years he or she will go for higher education at 16 or 18 years depending on the course he chooses. So as per his age, you have 13 or 15 years to plan and create the corpus which will be required in 2033 or 2035.
Step 2: Find Current Cost of Education – Analyse and find the average cost for higher education which goes on becoming a Doctor / Engineer or an MBA from both India and Foreign universities. Calculate the cost for both Indian and Foreign Education. It will help to set the Goals now rather later. For example, today's higher education cost of 50 lakhs can go up to 1.2 crores in the next 15 years.
Step 3: Find Target Amount – Once the current cost of education and the target date to achieve the same Is defined. It’s time to add inflation to the current cost. This will help to find what will the same education cost after 5, 10, or 15 years. At least try to save at least 50% of the target amount and fund it on your own. The rest can be funded through an education loan.
Step 4: Estimating return you can generate on investments – Planning for child education should start at a very early age of the child so that you can get enough time to set the target and achieve the goal. Since it is long-term we can take higher risk through high-risk asset class and earn higher returns and have an advantage for compounding of investment.
Step 5: Calculating the Monthly Saving Amount (S.I.P.) - Calculate the monthly saving amount required and start at the earliest. Choose the right funds which provide the best risk-adjusted returns as per your profile. For example, Rs 35000 growing at an assumed rate of 8 % will help you create 1.2 crores in 15 years.
The bottom line is to start planning for your child’s education. Set the target date, target amount, add inflation, identify investment avenues that give the best risk-adjusted returns, and calculate how much needs to be invested on monthly basis, so that you are able to build the corpus little by little and disciplined way. If you want to plan for a child’s education and don’t know where to start from, you can contact us, this our specialty to create financial plans for our clients. Will be happy to hear from you.
Happy Investing!!!
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