“Education is the most powerful weapon which you can use to change the world” – Nelson Mandela
We want our kids to have the best and nothing less with do. Be it education, food, opportunities and life in general. It’s the best gifts to give you the child, the gift of knowledge, the gift of education.
Our culture has especially emphasized academic importance to be responsible citizens and do something not only for yourself but for the society as well. Education has its importance but quality education is becoming more and more dearer in terms of expenses. Parents have to plan ahead if they don’t to be burdened or simply put that dream away for want of funds.
The only way this can be achieved is with clear goals and if you already have children, well, there’s no time to lose. If you have big dreams for your children like international education then you need even more intensive financial planning.
The following stages will get you on that goal on no time,
Stage 1 – Time Horizon
To know how much time you have, calculate the number of year until the child graduates or post-graduation. Longer time-horizon the better because you can plan and invest according, start this immediately.
Stage 2 – Arriving at the ‘Amount’
Now, we come to an important approximation of your child total cost of education. Consider the below questions,
One of the things to ask yourself is; do you want your child to have a global exposure and education, or do you prefer to have your child remain closer to home?
- Domestic or international Education?
- Which profession does your child will likely get into? Where the best schools?
- Undergrad or post-graduation?
- Overall Cash outflow for the qualification?
The amount that needs to be arrived at has to be in the future so we will have to take into ‘Inflation’ at 8 % per annum. Inflation is a real big factor and realistic inflation has to be incorporated into the goal plan. Pick between 8-10% on inflation for education
Stage 3 – Financial Assets and Liabilities
First, we need a list of the Assets and Liabilties as of today. This is a key requirement for effective planning.
You have your own retirement to take care of too. So the goals have to separate and analyzing the investments already made can help accumulate the desired corpus. Do not mix other goals for education like retirement.
Stage 4 – Saving Amount
Once the amount is zeroed in, now we can decide how much will the monthly investment have to be to achieve this goal.
Planning a Mutual Fund SIP or Systematic Investment Plan is best option as the money can grow in compound calculation, however, an RD account is also good. Setting aside money is important. This will help avoid taking a loan which is costlier.
Reduce your household and other discretionary expenses if the its difficult to assemble the amount.
Stage 5 – Planning Smartly
Saving and investing on a regular basis is the name of the game here. Investing in the right investment avenues or funds which are specifically great for the your ‘Child’s Education’ and choose the one which suits your risk appetite and counters inflation too.
Asset allocation has to be adequate for achieving the goal. Getting a financial advisor at this stage take the stress off the planning process with but for horizons greater than 5 years, you need to have equity funds in your portfolio.
Keep checking the portfolio if it’s adequately updated and can wade through economic cycles and market volatility.
Stage 6 – Insurance
You need to be alive to make your child’s dream come true or atleast make arrangements that the dream isn’t derailed incase you meet an untimely death.
Insurance is the key, be adequately insured.
So, you are all set! Follow these steps and you are on the way to giving your child the best that life can offer!
