By Ashok Kumar E R
Your neighbour’s daughter has been accepted at a premier education institution and they, along with their child, are worried about how to pay for it. Being a parent to a very young child, you may believe it’s not something you need to worry about right now or that you will figure it out or are already doing enough. But think again: Are you saving enough for your child’s college education?
Children’s higher education, especially in premier institutions, is becoming an extremely costly affair with each passing year. Current costs in India range between Rs 300,000 to Rs 900,000 per year depending on various factors. This includes tuition fees, boarding costs as well as the cost of study material and living expenses. Tuition fees in certain Ivy League colleges abroad can be as much as $55,000 to $75,000 per year. Moreover, these costs have been rising at a rate that outpaces inflation each year.
What makes planning for this life goal particularly important is that unlike some others, your child’s college admission cannot be deferred. When your child is ready to go to college, you should be financially ready too.
If you plan in advance and save regularly, the goal can be achieved with ease.
Begin with the basics
As a parent you want to be prepared for your child’s future. Ask yourself these quick questions to understand the first steps:
· How many years until they go to college?
· Which college category are you aiming for or prepared to save for – government colleges, premier private ones or Ivy League colleges aboard?
Your answers will now give you a fair idea of how much you need for your child’s education and get you thinking about what you need to do today. Let’s take an example:
Let’s say that your child is in class 1 today (age 5-6) and is likely to start college in 2031. Some private elite colleges in India cost about Rs 600,000 per year today, in 2031 the same will rise to Rs 18,50,000 per year, a total of about Rs 85,00,000 will be required between 2031-2035 for four years of the graduation course. These figures take education inflation into account.
This may seem daunting and difficult to achieve but if you invest regularly in inflation-beating instruments, such as equity mutual funds, then you can achieve your goal by investing Rs 15,400 every month starting today. This is assuming, education fees increase by 10 per cent every year. With salary increases, you should ideally plan to increase your investment by 15 per cent every year.
Invest regularly in inflation-beating instruments
Now that you know how much you need to invest and the number of years available to you, start your monthly investment plan, through SIPs in a set of equity mutual funds suited to your goal. Do this to beat inflation as well as benefit from compounding to grow and accumulate wealth for your goal.
The earlier you start, the less you will need to set aside every month and the more time your money has to compound. Review your investments every year and make the necessary adjustments.
Take the help of online tools
Irrespective of the size of your financial goals, online platforms have made it very easy to get started as well as stay on track. All it takes is a click of a button to figure out exactly what you need, what your financial targets should be and the best way to go about achieving them, including choosing a suitable portfolio of mutual funds.
(The writer is CEO and Co-founder, Scripbox.)