Kid’s first day of school is a memorable experience for parents. Before dropping their kid at school they make a check list of items the kid needs in school: School bag, water bottle, snack box, books etc. Considering the high inflation rates the school fees has experienced in the recent years, it is important that one should also include an investment plan for child education in their check list. It is important that we are financially ready for child’s education while they keep themselves busy preparing for their competitive exams.
1. Calculate the Amount Required
The first step is to set the target dates and the amount required at these target dates. It is also important that we consider the inflation rates while calculating the future funds required. The financial plans should always be made around the future value of the child’s education costs but not the current value. The future value can be calculated using the formula:
Amount needed = Current assessed value * (1+inflation rate considered) ^ (Tenure)
If you are planning to use some of your existing investments towards your child’s education, make sure you calculate the future value of the investment. These simple steps can ensure that you exactly know the amount and the monthly savings to be made.
2. Plan Ahead
Once you decide on the target amount required for child’s education, it is important to decide on the monthly savings and investments to be made. Investments maintain an interesting relationship with the investment tenure. The monthly investments to be made towards achieving a goal have an inverse relation with the tenure. At the same time, provided your monthly contributions and interest rate are constant the total amount accumulated is exponentially proportional to the time period. This in financial terms is named as power compounding. So if you plan ahead, power of compounding allows you to save in smaller amounts in order to make sure that you achieve the required corpus.
3. Assess the Investment Options Available
The goals like kid’s education and child’s marriage are the most important goals in one’s life. It is essential that you assess your time horizon and risk appetite before making decision on the investments being made towards achieving these goals. It’s a prescribed practice to invest in well diversified portfolio rather than investing in funds of single asset class.
4. Make Sure these Costs are Part of Your Insurance Cover
Always make sure you include the cost of child’s education while calculating your insurance requirements. This ensures that your child education costs are not affected by any unexpected eventualities in life.
5. Manage and Monitor
Make sure you always keep a track of your investment plan towards child’s education is performing. Always make sure you exactly know how much amount you have accumulated and compare it with the amount you should have accumulated at that time. Monitoring your portfolio at regular intervals will also help in deciding the ideal time to rebalance your portfolio
You might also be interested in: Thinking of an MBA? Know the real costs