How much money do you need for your child’s education?

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Being a parent is tough. There are just too many things to manage all at once. You probably spend a lot of time worrying about your children’s health, homework, and their social skills. Then, there is the thought about their future. And, you don’t want the lack of funds to come in the way of realising their dreams.

It’s probably best to start saving for your child’s education as early as possible. However, to save effectively you need a plan and a reasonable estimate of eventual costs. Here’s how you can estimate the amount you’ll need to save for your child’s education:

5 easy steps to help you calculate the amount for your child’s educational needs.

Step 1: Determine the time horizon

For investments, time is the most crucial factor. Based on your child’s current age and the age at which they will pursue higher education, determine how long (time horizon) you have to save.

Step 2: Research the cost of education

Understanding the current cost of education depends on where you live, the level of education you want your child to get, and the type of college you want them to go to. Also, determine whether your child will study locally or abroad for undergraduate, graduate and post-graduate degrees and whether it will be from a private institution.

Step 3: Consider the impact of inflation

According to the government, the costs of education are expected to rise faster than the costs for other services. Accounting for this higher cost as a result of inflation is essential.

Step 4: Pick a rate of return

Picking a reasonable rate of return on your investments is important. The rate you pick should be higher than the rate of inflation so you can preserve the purchasing power of your money. In an equity mutual fund, for example, you could expect a rate of return higher than your bank’s fixed deposit rates. Although the rate of return isn’t fixed, you can take an educated guess on the long term returns on a moderately risky mutual fund.

Step 5: Calculate the required monthly savings

Finally, with the expected rate of return and the final financial goal in mind, you can calculate the exact amount you will have to save monthly. Use an online calculator to figure out how much you will need to save every month to meet your target.

How much to save and how to invest for your child’s education

  • Planning becomes extremely essential, keeping in mind the increasing cost of education. In private schools, the average total per month per school-going kid cost in metros is roughly in the range of ₹12,000 to ₹18,000, if we add up all the costs including school fees (which includes various other charges), tuition fees, school bus, extracurricular and various ancillary expenses. International schools may cost even more than this a learning app.
  • Hence it is important to have a plan in advance. It is important to prioritise this as a dream and not use this money for any other short term day to day need. It’s very important to have a tentative plan with regards to the road ahead including aspirations for higher education in terms of course (academic or professional), location (India or abroad) and also fix timelines with regard to when you need the funds and an approximation of the amount after considering an average inflation rate on today’s course fees, living expenses and other such expenditures.
  • Education inflation has picked up too in the past few years. According to National Sample Survey Office (NSSO) – between 2008 and 2014, the average annual cost of general education surged by 175%. On an annual basis, the education inflation is about 10-12%. Hence, there are more reasons than one to plan for your child’s education.
  • You can always begin with a systematic investment plan (SIP). Consider equity for long-term investment. However, SIPs are not suited for short term. “When you know you are investing for your child’s education that is required only in the long run (seven years or more), SIPs and equity mutual funds are advisable,” said Sen. For other goals such as school education, your investment kitty should look different.

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