Planning for your child’s higher education corpus may look quite daunting at the beginning to gather such a large amount of funds considering the increasing inflation rate. Still, it is achievable, provided you are planning early and start your investments with SIP i.e. systematic investment plan in a mutual fund. Plan your financial journey according to your child’s future needs to achieve your desired goals.
Hypothetical example is given below -
Ms. Varma is a single mother of a child who will graduate in 10 Years. Ms. Varma wants her son to pursue Law. Let’s assume today’s cost is Rs 3 lakh; and now we need to calculate an estimated cost for the same in next 10 years based on assumed at 6 % p.a. inflation rate. So the cost of the education in the next 10 years is Rs. 5.37 lakhs. This goal can easily be met through SIP provided a regular investment of Rs.2334 is made on a monthly basis assuming the rate of return is 12 % p.a. (Please note this is based on the SIP and inflation calculator, however, it is not a guaranteed rate of returns)
Thus, it is most essential to plan and prepare to ensure your child gets access to the best of colleges. If you plan early, you may not have to compromise on your child’s future
Below is the step-by-step guide given to plan your SIP journey that helps build your child’s aspirations
Step 1: Decide Your Time Horizon
As stated in the earlier example, time is a crucial factor to determining your goals. Estimate the number of years left for your child’s graduation. The longer the time horizon, the better it is for you to plan and invest. Start early, invest wisely.
Step 2: Estimate the Cost of Education
You need to decide whether he or she wants a global exposure for education or a nearby well-renowned institute for their child. Also, which area of education do you want your child to graduate in is another important parameter to check. Depending on such points, you should be able to figure out an estimated cost of education. While keeping this in mind, it is thus important to determine future cost of school/ college.
Step 3: Assess Your Existing Assets and Liabilities
Make a list of all your assets and liabilities to help you assess your financial health and you can choose to plan better for your child‘s future goals. In a typical case, depending on your age, income and other significant criteria, you may need to prioritize your child’s education loan over the cost of a dream car or perhaps choose to delay your retirement planning depending on assessing your expenses and income (add a full stop)
Step 4: Estimate for the Amount to Be Saved
After calculating and assessing your assets and liabilities, the next step is to estimate our savings. Depending on that, you can choose your investment corpus. Decide how much you need to save now or whether a monthly contribution is required to achieve this goal on or before time. The easier way is to put aside some money towards each goal in a systematic manner. You can either opt for the Systematic Investment Plan in mutual funds or choose any other mode of investment options. An SIP is a preferred way to manage your investments. A disciplined and a planned approach will always make your journey easy.
Step 5: Choose your investment plan
Choose judiciously and invest wisely should always be your mantra. Asset allocation strategy is a boon to your investment journey. You may need to invest your hard-earned money in different investment avenues that depend on your risk appetite that aligns with your goals. Make sure you use the diversification strategy and continue to rebalance your portfolio at timely intervals. An SIP in mutual fund helps you do just that. You can choose from various assets such as equity, debt, gold, hybrid, etc. Ensure you analyze all the risks involved before investing, for example: Market risk, changes in Government policies, financial or economic crisis, etc.
Step 6: Prepare Yourself For The Unexpected
Make sure you are prepared for the additional costs that may or may not be included in the education cost, for example – tuition fees, hostel stay, books and stationery, etc. Remember to add them while preparing the cost analysis. None the least, start your investments today, Don’t delay. The earlier, the better.
Thus, with proper planning you are able to envision your child’s education expenses and help him or her achieve their dreams.