How to plan for your child's education inflationary costs?

Last Updated: Oct 25, 2014 | 1,881 Views

With the ever rising school fees, educational expenses have hit the roof. Parents are ready to even compromise on a lot of their expenses like EMI’s for the sake of their child’s admission in a branded school. There is a trend of around 10% inflation on the child’s current education. Thus, to meet the expenses and the demands and peer competition, there needs to be a plan well in advance.

Immediate School Expenses: So to beat the inflation of around 10% in a short time, just for school fees or admission, there are very few options Bank Fixed Deposits or Recurring Deposits or Debt Funds. This is because, 2-3 years is a very short time for investing in the market for average returns. Hence play safe by investing more for these yearly expenses.

Future Educational Planning: Now, when you need to plan for the child’s future expenses, keeping in mind your dreams, the child’s expectations and your abilities, there needs to be a proper plan well in advance. If you start early, then you can reap the benefits of the Power of Compounding as well. This simply means that the earlier you invest, the larger your money can potentially become because of the Compound Interest that accumulates on the entire fund. Also, when you plan, please do keep Future Value of Money and Inflation in mind.

So, the basic tips to plan for your child’s future expenses would be:

· Start Early- so as to reap maximum benefits. The longer the horizon of investment, the larger your returns will be because of the Power of Compounding. The Power of Compounding would help you accomplish your goals much easily.
·  Need Analysis- more often than not, a proper need and requirement analysis is not done and goals and aspirations are not set. This is a very important step so that you know what you need at the end of the day so that you can plan for the same.
·  Make a Proper Plan- most people end up taking a loan or making haphazard expenses for the child’s future only because it has not been planned well in advance. If the cash flow analysis properly done at the beginning, the execution of the same will not be very difficult.
·  Be Diligent- If the plan has been properly designed, all you need to do is follow the same diligently and not budge from it unless it is absolutely mandatory. Once the need is established, the plan is in place and you follow the same to the T, there is no reason for you to fall short on the plan.
·  Review- just like checking on a road map to see that you are travelling on the correct path, it is very important for you to check that you are following the correct path of Financial Planning for your Child’s future expenses. This is perhaps the most important reason for which you are earning and working hard to provide the best to your family. Review is also important because Needs, Wants, Goals, Dreams and Aspirations keep changing with time, life>
·  Contingency Plan- is like making a Plan B so that if there is a requirement for any additional funding at any point of time, there is no shortfall in reaching perhaps the most important destination of your life, i.e. your Child’s Higher Education Expenses!

Thus, by following the simple steps and choosing a portfolio mix with diversified asset classes according to your risk appetite, it would be a cake walk for you to plan for your child’s future educational expenses. However, you need to constantly check and ensure that you are on the right track! All the best!

Deepak Yohannan
Deepak Yohannan is the CEO of MyInsuranceClub. He enjoys writing on Personal Finance and contributes regularly on sites like Reuters & Moneycontrol. He is a strong proponent of online insurance and is often found pointlessly babbling about it!