Child education is really important. There are a few pointers that have to be kept in mind. Things such as income, the amount required for every milestone, investment plan, monthly savings to reach the goal, and more have to be considered.
Providing your child the best possible education is the dream of every parent and to make this dream into a reality you would need to start planning now. With increasing costs of education, you need to plan for your Kids education in the same way as you create plans for buying a car, buying a house or making plans for your retirement.
One of the key goals a good financial plan should have is to finance your kids education and let me explain the reason why
Ok now let’s discuss how we can go about creating a Financial Plan for Child’s education
This is the most important thing when you set up a financial goal for your Child’s education. Basically, there are 4 blocks you would need to take care:
This is the most important step for this you need to understand following things
The current cost of the education milestone: Let’s say if we are looking to plan for undergraduate education for the kid you can use benchmarks for different education streams like engineering at IIT costs around 12 lacs for 4 years similarly MBBS can cost you anything between 10 lacs to 20 lacs for 5.5 years.
Assessing Future cost ( when your child will require): Next step is to calculate how much would it cost let’s say undergraduate education in future. The way to calculate is as follows:
Where R = yearly increase in the cost of education;
n= number of years to your goal.
So let’s say if your Child is 5 years old and he is going to start her graduation at 18 then take as 13 years this will ensure you have money available up front.
R-> also needs to be chosen carefully a lot of financial planners will use current inflation rates but education inflation is much higher in India, I would suggest using 10 % inflation for your calculations.
Let us take an example. Median Fee for an engineering program in India is approximately 10 lacs today.
Median Fee for an engineering program in India: 10 lacs approximately
Average Inflation in the coming period: 10%
The cost of Engineering Education 15 years down the line : 41 lacs approximately
Now that you know the exact amount that you required for education’s expense next steps should be to create an investment plan to achieve the goal. Investment plan should start with what is the returns you can generate from your investment portfolio.
While there are lot of Child plans available in market most of them give sub optimal returns and have high fees/expenses. I would recommend you create a custom plan for your child with long term growth portfolio in mutual funds.
Now that you know the return you can generate from your portfolio and the final value you require to meet your goal, next step is to calculate periodic investment you need to make now to achieve the goal.
You can use a basic Final value formulae to calculate the same
Where r = expected rate of return
n= number of months you will make this investment for
Achieving your financial goals requires not just good planning but a disciplined execution. So, once you have the right plan in place ensure you meticulously follow on the same.
Do you have any other ideas or child education or investment plans? Don't forget to share it in the comments.
Hi, Can you refer some best saving schemes for girl child in India. I am looking for a good investment plan for my daughter. Are there any Government schemes for girls to support in their education and growth? I have heard about Sukanya Samridhi Scheme. But, is it worth investing in such schemes? Please give your suggestion.
Analysing our financial goals is the primary step in financial planning. Once we are clear of our goals, we can plan to save and invest in that particular direction. Providing good education can be an expensive thing in India. So, if we plan well in advance, we can manage to save for children education and our retirement needs also.