Mistakes to Avoid While Planning Your Child's Education
Dec 18, 2020
(3 min read)
(3 min read)
Child education planning in India is still at an emerging state but it is catching up to the speed. Let us look at a strategic approach to building a child education plan. It is always necessary to get the best child education plan for your child.
Following are the 5 mistakes you should avoid while planning for your children’s education.
1. Underestimating the future cost of education
Education costs have surged hypothetically, both literally and metaphorically. A 4-year engineering bachelor’s course costs Rs.10 lakhs while a medical degree can cost thrice the former. Blue chip MBAs are also terribly expensive. And, a good education within India will cost around Rs.60-70 lakhs. All this pertains to a domestic higher education. If you want to educate your child abroad, then the definite cost will be around 3 times this amount. Be as belligerent as possible in analysing cost expectations.
2. Don’t overvalue the returns on your investments
This is a common blunder people make. Just because bonds are giving you 9% returns right now, that does not mean it will endure till eternity. Consult your financial advisor and get some idea about the workable rate of return. Try to be as strict as possible when it comes to assessing the returns on investments. It is always better to be amazed after estimation.
3. Don’t delay the planning process
Even if you begin small it is okay, but you should always start early. Preferably, begin planning when you child is around 1 year old so that you have enough time to plan everything. The earlier you begin, the more you save, the more your savings will earn for you. This is known as the Power of Compounding. For instance, if your child is now 3 years old and if you plan to accrue Rs.60 lakhs when your child is 18 years of age, you need to save Rs.12,000 per month to reach the target. That is why starting early is so vital in child education planning.
4. Don’t put long term money in bonds and liquids
Don’t play it safe when it comes to educational planning over a 15-year tenure. Equity and equity funds are well-matched to outdo other funds over the long term. If you have a 15-year horizon, there is no point in pushing 60% in debt. Try to put at least 85% of your money in equity and equity funds. If you invest too much in debt, you are restricting your return generating capacity.
5. Evade lump sum investments and do SIPs instead
Investing in lump sum is not a great idea. Instead, start off with a Systematic Investment Planning (SIPs). On the one hand, you can start early and start Power of Compounding in your favour. The approach also synchronises inflows and outflows. Secondly, you don’t have to worry about estimating the market as the Rupee Coast Averaging (RCA) takes care of getting you the best cost.
Information @ Finger Tips