From giving birth to provide him/her best education, parents do every possible thing to make their child life better place to live. Parents almost spend 30% of their salary to fulfill the dream of providing their child the best education.
As you already know that nowadays high inflation in education is giving tough time to parents. In its recent survey, ASSOCHAM Social Development Foundation clearly shows “Rising school expenses really annoys parents” highlighted that school expenses of a single child including tuition fees have risen from INR 55,000 in 2005 to INR 1,25,000 per annum in 2015, that is an annualized growth of around 9%. The survey also highlighted the fact that 30-40% of parent’s salary goes to their children’s education, placing a significant burden on their family budget.
The situation is no better when it comes to graduation. No matter if your child is opting for MBA from a decent college, engineering, MBBS etc. it almost cost 7-10 lakh for the respective course of education which is very hectic for any middle-class family.
So, this is what Parents can do to avoid the inconvenience in their child’s education and provide them the best they can. You can even opt a suitable personal loan to prevail you from difficult situations of life.Make a plan
Like any other financial plan or goal, you have to plan for this also. By doing this you will get at least a rough idea how much money you would require and after how many time. It is obviously a very tough task to estimate the exact amount but you can arrive at a close estimate.
It depends on you that how much you can afford when it comes to school education. But remember, you have to account all the expenses apart from school fees like stationary, uniform, extracurricular activities etc. Similarly, for higher education, you also have to make particular calculations. You need to find out what is the cost of doing an MBA or engineering or becoming a doctor today only.
Estimate the Future Cost
- It is said that you should always be prepared for future because you don’t know what is coming towards you. Once you will be aware of the cost of something today, it is easier to calculate the future cost.
- You can easily make calculations of the future cost after adjusting it for inflation.
- If you need 20 lakh today for your child’s education then after 20 years the sum would go up to 93 lakhs, considering a rate of inflation of 9% per annum.
Choose the asset class
- There are many options both in debt (fixed deposits and debt mutual fund) and equity (stocks and equity mutual funds) where you can invest.
- How much you should invest in the two asset classes will depend on the time you have in your hand. Equity is a risky asset class.
- So, investing in it for a short or medium term may lead you to lose your money. So, longer the time you have in your hand, more equity exposure you can take.
- Also, with high rate of inflation in education, having more exposure to equity is better as it will be tough to achieve the targeted amount.
- Opt for equity diversified mutual funds. You can invest in mutual fund through systematic investment plans (SIPs).
- However, don’t go overboard on equity, have some debt exposure as well. This will help you cushion the downfall.
- Decide an equity and debt allocation based on your risk appetite and invest accordingly. Reduce your equity exposure in the years when you are about to reach your goal.
- Start redeeming your investment systematically as you are around 4 years away from your goal.
How much to invest
- After estimating the cost and how much you will allocate to the different asset class, the next step is to calculate how much to invest.
- For this, you will have to assume a rate of return from the respective asset classes. From equity mutual funds you can assume a rate of return of 12% over long-term, while from a debt instrument the returns will be around 8% to 9%.
- If you want to accumulate Rs 50 lakh, in next 20 years, you will have to make a monthly investment of Rs 69,393, if you invest fully into equity.
- In case, you invest all your money into debt, you will have to invest Rs 1,09,261 monthly for a period of 20 years.
- You can also go for schemes such as Sukanya Sumridhi scheme which is also a good option in case you have a girl child.
- You have often heard of many schemes launched by our government to improvise the current status of education.
- The government of India announced the scheme under “Beti Bachao, Beti Padhao” campaign. As she attains age of 10 years you can open an account in the name of your girl child.
- Government has allowed opening of account for girl’s up to 11 years of age under a special exemption.
It is very important to secure your child’s future by providing the right education. Things may not go the way you have planned and all the above points fail, you still left with the option of taking loan. Yes! If it is necessary you can go for a decent personal loan scheme which will help you in your difficult times. Financial institution can be your faithful friend in your needy times if you want to avail any kind of loan.