How Do You Save Money for Education of Your Children

How Do You Save Money for Education of Your Children?

Child education is one among the major expenses of parents who besides taking care of rents and EMIs have another very stressful liability to worry about. Child education expense starts to stress the parents the day the child is born. There are so many children education plans mushrooming in the market that educate you on how to start and when to start but parents fear buying it from the insurance agents as the latter intend to push their products on them only to earn more commission. However, following the below mentioned points would suggest you the ways to save money for your child's education.

Always pre-decide on the amount required:

Start by targeting the amount and the date when it is required. What is is even more essential is to factor in the inflation rates while calculating the amount of funds needed in the future. The financial planning must always be done taking into consideration the future value of the child's education costs, and not the current value. The future value can be calculated using the following formula:

Amount required = Current value x (1 + inflation rate considered) raised to the power of (Tenure)

If you intend to utilize your existing investments while planning for your child's education, always calculate the future value of your investment.

The figure shown below should give you a fair idea about how inflation in education would change your future financial planning.

Be ahead of time:

After deciding on the target amount, it is necessary that you decide on the monthly savings and investments to be made. As the amount that you monthly or yearly invest would grow over time. The longer time you invest your money for, the more it grows. The total amount gathered is exponentially proportional to the time period. This, in financial terms, is called power compounding. So, it is wise to start when your kid is born. Let us take the example of below mentioned figure to understand, why?

As you can see, the money has grown the best when it has been invested for longer time and in a riskier plan. The more the risk the more is your return. The growth/return story is synonymous with the time factor as well!!

Analyze the investment options:

Educating children holds paramount importance in every parent's life. It is also a very costly affair and hence requires one to carefully assess their time horizon and risk appetite before making investment decisions made towards achieving these goals. It's recommended to compare child education plan and invest in properly diversified portfolio rather than investing in funds of single asset class. See the picture above to understand better.

Evaluate the performance of your investments:

Always keep a check on your investment plan towards child's education and ensure that it is performing. Stay informed of the exact amount you have gathered and compare it with the amount you should have gathered at that time. Monitoring your portfolio at timely intervals will also aid in deciding the ideal time to re balance your portfolio.