Planning for Education is “Not a Child’s Play”
June 1, 2022A child’s education is an important goal for every family. Parents always want to provide the best in everything for their children. Especially when it comes to education. It is always a parent’s priority to ensure their children have a safe and secure future. However, education can be costly and inflationary nowadays; with people struggling to ensure ample capital for education. But how can one go ahead with the same! Here are some tips.
Be an early bird
The first rule in such a goal-based investment is to start saving early. Thanks to inflation, the cost of children’s higher education is on the rise exponentially nowadays. If we start early; the required money can be amassed with the power of compounding over a period of time. Also, with lesser expenses at an earlier age; the monthly contribution can be more. The late you start, the more your monthly commitments become. Job insecurity also can be a hindrance. So, the earlier the better.
The below table shows the monthly contribution required to achieve an inflation-adjusted target amount of Rs. 20,00,000/- over a period of 5 years, 10 years, 15 years and 20 years. The rate of return is assumed at 10%. The more the time we have to reach the target, the lesser will be the amount needed for contributing towards the same.
| Inflation Adj. Target Amount | ₹ 20,00,000 |
| Rate of Return | 10% |
| Time Period to achieve | Reqd. Monthly Contribution |
| 5 years | ₹ 25,614 |
| 10 years | ₹ 9,683 |
| 15 years | ₹ 4,786 |
| 20 years | ₹ 2,612 |
Choose the right option
Just a start will not be sufficient enough. A correct decision has to be made on the investments to get optimal results. Equity oriented long-term investments have the ability to deliver superior inflation-adjusted returns. The longer the time horizon, the higher the probability of positive inflation-adjusted returns. The right asset allocation is the key.
Play it safe in the short term
If you have a shorter time frame, it is safer to rely on debt / fixed income instruments. This may provide a lower rate of return but ensures the safety of the capital. Liquidity is also good for such instruments.
Review the portfolio
Even though the investment portfolio for children’s education is in place, it is always good to review it on a yearly basis. The amount should be revisited each time as due to the current inflation and rising costs, the fees may be subjected to sudden rises. An annual check helps you have a tab on the performance of the assets. Likewise, rebalancing your portfolio helps you to identify and have a check on the outperforming and underperforming assets.
Approaching the goal
Make sure not to indulge in any risky investments, as you approach your goal deadline. Since the timelines are fixed when it comes to the education of your child, utmost care should be practised while handling funds. It would be better to gradually move funds towards safer instruments such as Fixed Deposits, Money Market Instruments and other such low volatile assets in the meanwhile and put a pause on more volatile Equity-based investments.
In short, factors like the time required, understanding of the education costs, inflation, rate of return and having a hold of the monthly savings help us determine the amount required to be saved for a child’s education. People are realizing the importance of financial planning to provide quality education for their children and make them economically secure. Instead of spending time worrying about a child’s future, it is always better to have a proper financial plan in place that can help achieve the dream.