🪜3 steps to fund your Child's Dream Education
Plan the education expenses in advance.
“Why should I even think about my child’s education cost? I’ll take a loan.”
❓Did you know? The interest moratorium of 2 years can shoot up your loan amount by around 30%?
Yes, a INR 50 Lakh outstanding loan will become INR 65 Lakh loan by the time your child get’s a job
So, you need to plan for it, right?
🚀 Let do it here:
👉🏻 Step 1: Decide the amount required 💰
If your child is planning an MBBS, check what is the fees right now of a private college.
Will that be the fees you will need when he/she turns 18?
”It costs 50 Lakhs today! Sounds, cool. It is doable.” If that’s what you think, keep reading.
What about inflation? Your child’s education might get more expensive from here. “Fine, I’ll factor in an inflation of 7% as our country’s headline inflation is 7%.”
Incorrect!
You need to factor in the pace at which the cost of education 💸 of your child’s dream college 🏫 is increasing.
For example, an IIM-Ahmedabad Degree used to cost INR 20 Lakhs 4 years ago. Today, it is around 30 Lakhs.
This is a compounded inflation of 10.7%. So, it is better that you assume a similar kind of inflation depending upon your child’s goal.
👉🏻 Step 2: Decide the plan required 📝
I see that some bankers come selling “Child Saving Plan” to sell the dream education goal.
But first understand that, is that what will really help you?
I have read many of such products but they are generally low-return yielding products.
Now tell me, if I say that the product that you have chosen is yielding 6%, and the inflation in your child’s dream college 🏫 is 10.7%, then clearly, there is one party that is losing here.
Not the bank, not the banker, not the institute, but YOU 😢!
It is very important to understand that your plan should at least meet the required rate of inflation for you just break-even in terms of inflation etc.
Assume a conservative return estimate of 12% on Equities, i.e., Nifty 50 TRI - More about it towards the end.
This will somewhat help you achieve and beat the required rate of inflation, and make you win🥳.
Please for god’s sake don’t fall in the trap of equity-linked insurance plans. There are simpler plans available in the market with lesser expense ratios 📈
👉🏻 Step 3: Decide the lump-sum amount required and SIP you need to make
Lump-sum is an amount that you invest once and for all.
SIP or Systematic Investment Plan is an investment that you make every month / quarter.
The financial goal calculator is given on our website (www.learnpersonalfinance.in) FREE of cost in “Learn Personal Finance Community” can help you in calculating that amount which you need to make every month to reach your target financial goal.
Having said this, it is very important for us to understand where we invest.
Having an experience of dealing with my clients, I know people have invested in really bad products.
Such bad products that they have to rely on loans and get crushed by EMIs 😞. Get crushed by EMIs even after they attain the age of 60.
They do not have just one education loan EMI but hefty home loan EMIs too 😔.
I have seen many of my parents’ friends who are even CAs doing such mistakes.
While we are taught how we should calculate returns in our curriculum but seldom we are taught about practical application of financial products in our lives.
Thus, even if you have a financial planner by your side, you need to understand what products are and what is best suited for you.
It is practically impossible for them to make their ends meet if they cater to retail clients like us, unless they sell products which give them 40% commission from your investment amount.
Yes, there are such products and they do sell them!
So, you need to know yourself about what is the best for you!
Hence, I decided to prepare a Personal Finance Workshop for you all.
No it is not priced at a bomb price like 10,000 or something.
We have currently priced it at just INR 999 🤩 so that you never have to rely on relatives or take loans.
Learn so much more about planning your investments, acing your financial goals like a pro and taking your financial literacy and planning to the next level 🥳!
All the best!
~ CA Kanan Bahl
Disclaimer: Please note that this blog has been shared just for educational and awareness purposes. Please do not forget to refer to your SEBI registered Investment Adviser before taking any financial decision