One of the constant worries that plagues the mind of every parent is how to plan for child education. With the rising cost of living and sky-high inflation rates, it is natural for every parent to start planning to ensure that their child (or children) has (or have) the best opportunities for education.
Set out for you is a step-by-step guide for you so that you can come up with the best child education plan. The importance of education can never be underestimated and even with limited finances, it is possible to provide quality education.
Child Education Steps
1. Start planning very early
As soon as you have a child, start planning for their education. Do not wait for him or her to reach a certain age. It’s a common mistake that most parents make. The earlier you start, better are the chances of you reaping the maximum benefits. Even if you are not able to start child education planning very early, start once he or she is about 3 years old. A long-term plan helps due to the compounding effect of your investments.
2. Always assess your assets and liabilities
Lay out the basics before you start planning. Your assets will determine the kind of collateral you can provide to support education. Your liabilities—on the other hand—will determine how much can you realistically spend. If you are planning to buy a house while raising your kids and giving them the best child education plan, a cost benefit analysis of your assets and liabilities will help you take the right decisions. It is also important to get a clear idea of any future investments
3. Decide on the corpus amount that you wish to have
With each passing day, the cost of quality education is increasing. Take for example the amount to be paid by someone who enrolled at an IIM for an MBA in 2018 – INR 19.8 lakhs. This is approximately 400% higher than what one would have to pay for the same course in 2007. If you want your child to attend an international school or go abroad for graduation, the costs are even higher. Therefore, it is important to make an assessment about the approximate amount to be spent for education. You can assume that there will be guaranteed inflation of 8-10% every year when it comes to education. Once you know the approximate amount, choose the child education plan which suits you.
4. Invest and save regularly
No investment can reap the desired benefits unless it is done systematically. Save and invest on a regular basis. Once you know the target number, work out the monthly amount that you need to save in order for the investment to work out. Even smaller amounts, when invested regularly, can help you reach your target. This is an extremely useful tip if you are not financially well off but want to invest in in a good child education plan. Look at your annual earnings and see how much can you save after meeting all your liabilities. It is important to be financially disciplined for executing any investment. Cut out unnecessary expenses to increase the corpus of savings.
5. Invest smartly
It is never a good idea to park all your savings into one investment vehicle. You have chosen the right investment options which will help you to accomplish your goal. It is equally important to diversify your investment portfolio so that your risks are distributed.
Apart from children education plans, consider investing in equity mutual funds. These are great for a period longer than five years. You can move to a debt mutual fund as you get closer to your investment horizon.
Choose SIPs to make the investments in mutual funds as they assist in maintaining the regularity of investments. If you have a balanced and well-planned portfolio of investments, you will be able to get exponential returns.
6. Expect the unexpected
Even the best laid plans can go awry. Always remember that you cannot be prepared for all possible expenditure when it comes to education. Even with the most meticulous planning, you may end up in a situation where the projected expenditure has gone up substantially. One has very little control over the market and rates of inflation. So, it is always a smart idea to keep aside a buffer amount. This will help you on a rainy day. But at the same time, do not dip into life savings in case of unexpected turn of events for your child’s education. Taking out your retirement fund to support the extra cost of your child’s education is a not a prudent decision. In such cases, you can always explore more investment options.