Education is an essential aspect of every child’s life, and as a parent, you always want the best for your child. As much as you would want to send your child abroad to get an exceptional education degree, you need to evaluate and align your financial situation accordingly. Affording education, both in a domestic and international setting, is getting difficult today. Does that mean you have to compromise on your child’s education? Not at all. You need to plan better and let us help you with that.
Here are a few steps that will guide you towards accomplishing the educational goal for your children:
Calculate the cost of education: You have to start with planning out for the education goals by considering factors like the cost of education in the present, your financial situation, etc. Ask questions like Which degree requires funding, e.g., graduate and/or post-graduate?, What are the types of expenses that need to be covered, like accommodation, living expenses, travel costs, etc.? This will help you narrow down to a number that will serve as a starting point.
Take into account other factors like inflation: Once you have come up with a number for your child’s education; establish the future value of the education fund requirement. Take assistance from a financial planner to understand what exactly is the applicable education inflation rate. Don’t forget to take into account the education inflation in the country you are planning to send your child and the rate of depreciation of the currency. This refers to the rate at which the rupee will depreciate against that country’s currency.
Invest wisely: Educational goals are usually long terms goals and should not be looked at in immediate returns. Don’t be hasty while choosing options to invest these funds. Your financial planner could help you in building a portfolio taking into consideration your risk appetite and time horizon to earn the required returns.
Keep alternate options ready: Not everyone has surplus funds to start saving up for their child’s education. In such cases, consider alternative options like scholarships and education loans that can be availed abroad or in India itself. These loans manage to cover tuition fees, living costs, and other expenses related to education. But it is advisable to plan for an educational goal to reduce the loan amount, offering you much more assurance and financial stability.
Parents often invest in an insurance plan as coverage for their child’s education. But this is not usually the right approach as it can be inefficient and inadequate to fund their education, here or overseas. When you take a goal-based approach to your financials, education should be looked at as a separate goal and not just a one-time policy investment. It is crucial to plan, process, and understand where to invest money that will help you achieve this goal.
Parents might get into a tricky situation if they start planning early as to what career path do they plan for. In such situations always opt for investing in ways that you accumulate more than you accounted for. It is always safer to be prepared for an expensive education rather than later realizing you don’t have sufficient funds to pay for your child’s education.
Planning early and investing right will allow you to live free of worry. Irrespective of the fact that you can’t prepare for every eventuality; create a scenario where your children can access multiple opportunities. This will allow them to get the education that they need and secure the financials that you need.
Mr. Amar Pandit, CFA, Founder of HappynessFactory.in