Looking for a good child education plan?
It is normal for parents to want the best for their children – the finest education, the greatest possibilities in life, and so on. But, as you can see, education is one of the finest presents you can give your children.
And, as Indians, we are deeply indoctrinated in the belief that education is important, and we want our children to attend the best schools in their chosen disciplines.
Even if education is the parents’ first goal, the prices are a huge issue. They spend a significant amount of their money to offer the finest education possible. As a result, a financial strategy to reach this aim is critical.
If you already have children, start preparing as soon as possible. Especially if you want your kid to attend a reputable school and study abroad. You must start preparing as soon as possible since college expenditures are only going up.
Table of Contents
Step 1: Estimate The Cost Of Education
The first thing you should do is calculate the whole expense of schooling for your kid. This is determined by a variety of things.
One question to consider is if you want your kid to have global exposure and education, or whether you prefer that your child stay closer to home.
This should be addressed in conjunction with the second question: are there reputable schools in India/abroad for the discipline your kid is likely to choose?
Third, do you want your kid to study abroad for both undergraduate and postgraduate degrees, or simply the postgraduate degree?
Finally, in both circumstances, what is the probable total cash outflow?
In addition, while estimating the entire cost, it is critical to include the future cost of high school, college, or postgraduate education.
Step 2: Assess Your Existing Assets and Liabilities
Make a list of all your assets and obligations so you know where you are now and can plan appropriately. This may help you plan more effectively.
For example, Mr Shah needs Rs 1.20 crores for his son’s schooling for the next three years. To obtain this corpus, Mr Shah would have to invest in debt (because of the risk inherent in stocks) for Rs 2.98 lakh every month in a mutual debt fund, producing 7% post-tax returns.
Is it conceivable, given that Mr Shah has other objectives for which he must invest, the most important of which is his own retirement?
As a result, he should first examine any previous investments that may have assisted him in accumulating the needed corpus.
While planning for your child’s education, keep in mind that you must avoid dipping into assets established for other financial purposes, particularly your retirement corpus.
You must also refrain from using the funds set aside for your child’s education for non-educational needs such as house renovations, etc.
Step 3: Avoid Low Returns Investment
Children’s education is often a long-term aim, and as shown in the preceding example, there is significant cost inflation in this area as well. As a result, you should invest in securities that give returns that outperform inflation. A lengthy investing horizon enables you to assume modest amounts of risk while possibly generating substantial long-term profits.
For example, the 10-year returns on equities mutual funds are 11.80 per cent, which is much greater than the rate of inflation and returns on the best savings plan such as PPF. With a long-term investment strategy based on high-reward instruments, you can recover from periodic market swings and achieve the target corpus in the shortest amount of time.
So, if you want to invest Rs 50 lakh over 15 years, you may either spend Rs 10,000 per month with a return expectation of 12% or Rs 15,500 with a return expectation of 7%. The first choice is less expensive.
Step 4: Get Yourself Adequately Insured
Have you thought about what would happen to your desire to provide the greatest education for your kid if you die prematurely or are involved in an accident that limits your physical capacity to work?
One of the most serious possible impediments to a child’s education is the death of the family breadwinner and the absence of a child education plan.
Make sure you have adequate life and health insurance to support your child’s tuition at the school and college he or she may attend.
You see, there are methods to meet your family’s objectives even when you are not there.
But it can only happen if you have enough insurance to cover your family’s financial objectives and routine needs.
Similarly, ideally insure for health. In the event of a medical emergency, not having appropriate medical-claim coverage, or none at all might jeopardize your financial objectives.
Child Education Planning Calculator
The child education plan calculator is a simple tool that is freely accessible online that may help you estimate how much money you will need to meet your child’s future demands. The purpose is to assist parents in better strategizing and planning in order to reach their financial objectives in order to fund the expense of their child’s education in the future.
This Child Education plan calculator employs the notion of future value to determine the cumulative corpus needed for the child’s higher education. The formula is as follows:
Future Value = Present Value (Expected Returns+Interest Rate) *N, where ‘N’ is the time period for which the investment is needed.
For example, if your kid is four years old and will not attend college until he or she is eighteen, we are looking for a 14-year investment (18 years – 4 years).
If the present cost of higher education is 9 lakh, with an annual inflation rate of 6%, and you estimate a 10% return on your existing investments, you would need a total corpus of 20,34,814 to pay the future cost of education for your kid. It merely takes a few seconds to figure out how much money you’ll need.
Wrapping It Up
As a parent, one of your most essential responsibilities is to educate your kid effectively. Don’t forget that education is critical to your child’s future.
However, take a prudent approach to fulfill your duties for your child’s education. Don’t follow the herd since everyone’s financial situation, circumstances, and ambitions are unique.
Before creating a financial plan, you must first assess your child’s future requirements and then begin working toward those ‘need-based objectives.’ Estimate the costs that may accrue and then choose a child education plan.