3 Rules For Planning Your Child’s Higher Studies
If you, like all parents, dream of being able to afford a world-class college degree for your child, here are three thumb rules for you to keep in mind.
Factor Inflation into Your Calculations
According to a survey sanctioned by the NSSO (National Sample Survey Office), the annual cost of professional and technical degrees rose by a staggering 96% in the six years between 2008 and 2014 – an annualized increase of 11.89%. The class of 2019 at IIM-Ahmedabad will pay Rs 21 lakhs for the flagship two-year PGP course – a 7.7% year on year hike, and a 450% increase over what the B school charged in 2007. If the fees for the coveted management course continue to rise by even 10% each year, it could cost Rs. 72 lakhs in 2030!
When setting the target amount for your goal, make sure you don’t ignore the impact of inflation on the future value of the goal amount. An amount that seems sufficient in today’s terms may prove to be woefully inadequate when the goal date arrives – not planning properly may lead to your having to dip into your retirement fund, or take out expensive education loans to fund your child’s higher studies. Don’t be daunted by a seemingly high number – if you’ve got time on your side, compounding will work it’s magic if you begin early, and maintain savings discipline.
Protect Your Goal
When it comes to safeguarding sacrosanct goals such as your children’s education, you need to make sure that you’ve got all your bases covered. In other words, you’d like to ensure that your goal is met even if you, the primary bread earner, meets with an unfortunate eventuality.
It’s an irony that for a nation of prolific Life Insurance buyers, most of us leave the gates wide open when it comes to ensuring that a calamitous event doesn’t leave a goal that’s as critical as our children’s education tottering. This usually happens due to a poor understanding on most of our parts, of Life Insurance as a highly effective risk-transfer tool. Ideally, you’d like to take up a separate term insurance plan that safeguards your child education goal, with a sum assured that’s equal to the discounted future value target. A qualified Financial Planner can help you arrive at this target number.
Do note that the aforementioned Goal Protection strategy is futile unless it’s smartly coupled with an aggressive savings strategy, which brings us to our final point.
If you’re starting to save early, while your child is still young, you’ll likely have a time horizon of ten years or so before the requirements start kicking in. in order to adequately capitalize on this lengthy time horizon, you should opt for SIP’s in high risk, high return Mutual Fund Investments that have the potential to outperform other asset classes handsomely, albeit at the cost of a higher risk. Even a small return differential of 2% - 3% per annum, extrapolated over 10-15 years, can make a massive difference to your final fund value. Avoid fixed return savings schemes such as fixed deposits or government led schemes that provide low returns. Remember the thumb rule – for your Child Education Planning – Small & Midcap Mutual Funds Sahi Hai!