New Delhi: Parents aspire to provide the best for their children. We must pay special attention to financial planning for their higher education. Rising education costs coupled with aspirations of quality education demand that we start planning as soon as we can. One of the challenges in financial planning for our kid’s higher education is estimating future fund requirements. It’s tough to calculate this accurately. Hence, the best we can do is to keep a few things in mind while doing our calculations.
The benefits of an early start cannot be stressed enough when you are saving for a long-term goal. If your child is 3-4 years old, you have a good 13-14 years to save. Starting early helps you amass larger sums that may not be possible later in life. Starting early also puts a lesser burden on your finances because it requires a smaller outflow.
Estimating the current cost of education
Estimating future education costs is the first step towards building a fund for your children. With a goal in mind, you can work backward to achieve it. The cost of education would vary for each parent and child as it would be dependent upon the type, of course, your child may be interested in. Admission to private colleges or professional courses such as engineering and medical cost much more than the rest. The costs could be much more should your child decide to study abroad. Therefore, your estimate should be on the higher side.
Today, doing an MBA from a premier institute may cost upwards of Rs 20 lakh, a medical course may cost over Rs 25 lakh, foreign education could cost around Rs 50 lakh, and so on. And these costs will only rise with time.
Factor in the rate of inflation
Education inflation exceeds headline inflation. Once you get an estimate of current costs, you need to apply the expected average inflation rate for the remaining period until your child’s higher education begins. For example, a two-year MBA at IIM Calcutta costs around Rs. 2.5 lakh in 2004.
In 2020, it costs around Rs. 27 lakh. This implies an average inflation rate of over 15% per annum. Assuming the same rate of inflation, the same course will cost Rs. 2.2 crore 15 years later. Therefore, with this figure as your goal, you can start calculating backward.
Review your investments
Like with any financial goal, you must review your investment and assess if it’s making the desired progress. If your investment is on track, you may not need to tweak your plan. If it’s falling short of your expectations, you may need to tweak it. If your rate of return is too low, you may need to introduce risk into your investment in order to maximize long-term rewards. If your plan is doing better than expected, at the appropriate juncture, you may want to book your profits and secure the capital instead of leaving it exposed to market forces.
Courtesy- ETNOWNEWS
