How much I should save for my child’s higher education?
How much I should save for my child’s higher education?
This is a question, which almost all parent ask himself because children education is an emotional issue in our country. We all want to give the best education to our children. With more and more study options emerging, most parents are confused on this topic. It is so emotional issue and nobody wants to compromise on this issue for want of money. Still the question remains – how much I should save for my child’s education.
Here the discussion will be limited to the higher education after higher secondary course. Normally the child will be ready for graduation at the age of 18. The amount should be handy by this time even though the expenses will be incurring in the next 4-5 years depending on the course.
How much should be saved for the higher education?
We don’t know the interest of the child when the child is too small. But we cannot wait till the child is aged 15 to start planning for this goal. Then what is the alternative.
Don’t worry about which stream, the child will prefer for graduation. As a responsible parent, your job will be to send him for the course of his choice. Whichever stream he select at age 18, one thing is certain that the responsibility of arranging for the cost is on you.
How much it will cost then?
That depends on the stream of study. But how to plan for it now when we are not sure about the stream?
Here you have to go for a decent figure as per your aspirations on your child. Later, you can modify it when you are nearing the goal and when the child is developing interest towards a particular stream.
A 4 year course in engineering will cost around 8 lakhs today while a 2 year MBA can cost you between 8-20 lakhs depending on the institute. The 5 year MBBS can cost you even 30-40 lakhs in private medical colleges. If you assume 10% inflation, these courses will cost as follows after 15 years.
Engineering: 33 Lakhs,
MBA: 33-84 lakhs
MBBS: 125 – 167 lakhs
How to create this amount in 15 years?
If your child is aged 3 now, you have 15 year time to create this amount. Suppose you are planning to accumulate 33 lakhs for your child’s higher education. Which instrument is ideal for such long term investments?
Mutual funds have given around 20% CAGR return in the last 20 years. Investing small amounts every month under systematic investment plans have the potential to deliver much better returns than the traditional products like bank deposits and insurance plans. Even assuming a 12% CAGR return in the next 15 years, you can create 33 lakhs by investing 7000 per month.
For creating 60 lakhs, you may invest 13,000 per month for the next 15 years. But if you start late, the investing target will be high.
Go for education loan for the shortage
In case, there is a shortage, you may opt for an education loan at that time. The banks are very liberal in student loans. The entire interest paid on such loans is allowed for tax deduction. This can help the child in saving taxes when he starts earning after the course. The repayment of EMI can inculcate financial discipline in the child. Prompt repayment can help the child in creating a good credit score also.
Get professional help
If you cannot arrive at the amount for education goals, it is better to opt for the services of an independent financial planner. The planner will not sell any products, but will recommend you the best suited instruments for you. He will recommend the best mutual fund options where you can invest. It will be better to select a fee only financial planner registered with SEBI as Investment Adviser.
Melvin Joseph
SEBI registered Investment Adviser
SEBI registration number -INA 000000342
Finvin Financial Planners
10. Ground Floor, Olive Excel CHS Ltd
Plot No- 16, Sector 42, Nerul, Navi Mumbai – 400 706
Mobile: 91 9820843739
Website : http://www.finvin.in
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