scorecardresearchSaving early for your child's studies: 4 key points to remember

Saving early for your child's studies: 4 key points to remember

Updated: 02 Aug 2022, 07:55 AM IST

Studying abroad is an expensive affair. Also, it mandates meticulous planning of your finances at every stage before it all boils down to investing the right amount in the right kind of assets. 

Your dream of sending your child to foreign universities for higher education is possible only with the right financial planning.

Your dream of sending your child to foreign universities for higher education is possible only with the right financial planning.

Indians are leaving the country in droves, especially, students aiming for higher education in foreign lands. While there may be myriad reasons prompting many to do so, an important question is how many people can afford to send their wards abroad for the same. Studying outside is an expensive affair. You will need a large corpus to pay off the college fees, tuition fees and other additional expenses.

Planning your children’s foreign education is not easy. Implementing it on paper is nothing short of a roller coaster ride. This is because you must first figure out how much money you must save to send your child to a college abroad. Once you have decided on the amount, you can then plan your savings and investments accordingly.

Deciding on the corpus

Remember how the ugly head of inflation has always forced costs to increase. What it costs now to send your child abroad to study is nothing compared to what it will cost a decade later. The best way out is to calculate how much money you need now to calculate how much money you will need when the time comes.

Prathiba Girish, Founder, Finwise Personal Finance Solutions says, “It’s good to use the rule of thumb (Rule of 72) to understand the effect of inflation. At an Inflation of seven per cent, the education expenses will double every 10 years. It’s important to note that the current high inflation across the globe is transient and one needs to look at long-term trends while planning for children’s future. If one takes into account long-term inflation of four per cent for the US, the current costs of 50 lac per year will be 64 lac per year in eight years from now.”

The sooner, the better

It makes sense to start investing now to ensure that you give more time for your investments to grow. Time is key to investing without which planning your investments is futile. The magic of compounding is possible only with enough time on its side. With time on your side, you will not only beat inflation but will also accumulate a corpus that will pay for more than just your child’s foreign education goal.

To start with, divide your goal of the corpus into smaller achievable goals. Starting from applying to various foreign institutions to preparing for the entrance examinations to checking out the various course fees, tutorial expenses, hostel expenditure, travel money, processing fees and others. Add the education inflation rate to each goal to determine how much money you will need then.

Once you are aware of how much money you might need at each stage, you may as well break them into simple financial goals and allocate your money accordingly. Seeking the help of a personal financial advisor who can guide you toward the right investments will help.

Decide on your asset allocation

Now that you know how much money you would need, you must decide on the right asset allocation. Asset allocation has a lot to do with your investment tenure. Since you would need a decade later, it makes sense to usher in a good percentage of equities in your investment portfolio. The rest can then be allocated to debt funds, bonds, hybrid funds including balanced advantage funds, fixed-income plans, gold, silver ETFs, and more depending on your risk appetite.

Many inquire about the need to include debt funds as a part of their investments. The answer is stability. Stability is the antithesis of market volatility in the stock market. While stock market movements depend on earnings by the listed companies, there are myriad factors that can cause a sudden jump or an unforeseen fall in the markets. 

For example, those who had started investing in 2020 bore the brunt of the pandemic that caused the markets to fall to an unprecedented low. The markets then bounced back in the later half of 2020 lending investors the much-needed respite. The current geopolitical situation has put the market on a sticky wicket with the bears overruling the bulls most of the time. However, as in every cycle, markets are bound to rebound and yield returns, thus, helping investors to make up for the perceived losses on their investments.

Gold investments help as they serve as an essential hedge against inflation and will protect you from unwarranted heartburn in case of an untoward happening affecting the marketplace.

Shuffle your investments regularly

Also, you must tweak your financial planning at crucial stages to protect the corpus that you have accumulated. This you can do by shifting a major part of your investments to debt to protect the money against market risks. Apart, a healthy mix of debt and equity in an investment portfolio is a must for every investor to ensure adequate diversification and enough corpus at the time of withdrawal.

Saving for your ward’s foreign education goals may seem tedious at first. However, timely execution of your plans will save you from unwanted frustration and the rush to arrange for funds when the time comes.

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First Published: 02 Aug 2022, 07:55 AM IST