How to Plan Your Child’s Education Finances – Forbes Advisor INDIA

There are some common financial goals that everyone works for, like buying a new car or paying for your child’s overseas degree. What is different is the level of planning involved in achieving these goals. How much money you set aside for each goal, how often you reevaluate your wallets to see if you are on track or how often you check if all your goals meet your set time limit, sets you apart from other savers.

Your checklist of things to do if your planning is off track

Investment markets are volatile and unpredictable; you don’t know how the market will behave tomorrow. Therefore, you may not be on schedule for all of your goals and it’s okay if you’re off track. What matters here is not that you are off track, but rather your ability to take corrective action to get around it.

Let’s take a look at some corrective measures that can help you get back on track and work towards your goals:

Check if you have time by your side

You can always delay certain goals like a trip to the Bahamas by a couple of years. This gives you time to accumulate money and execute plans when you are ready, but there are events that cannot be delayed. For example, your child’s graduation. This is something that is inevitable and is a definite goal. While you can reject a master’s degree for a few years, typically, you can’t reject a bachelor. To achieve these goals, you should keep an open mind and consider several alternatives to achieve them.

Analyze if you can scale your goal

This works wonders when you put your convenience first instead of your aspiration. For example, if you’ve always dreamed of giving your child the best education but don’t have the required money, to make sure your child is still getting a quality education, you can choose to change your college preference to one that suits yours. budget / current body of objectives. If your child’s college costs INR 40 lakh, but you can only save INR 25 lakh; you might consider changing college depending on your accessibility.

See if you can increase your investments

As an investor, you always want your portfolio to balance your risk appetite and provide you with sufficient returns to achieve your goal. However, the market is not as rosy as we might think. When you see that you are off track, try to evaluate if you have the opportunity to top up your wallet.

A flat rate top-up in an erratic market often helps you get back on track. This is only applicable if you have time by your side. Consider this, if you are saving for a child’s education and in 2021 and 2022 market volatility has eroded the wealth from your wallet. To get back on track, you can top up your wallet with a lump sum if you are more than five years old for your goal.

Find alternative solutions to finance your goal

This is more applicable to the inevitable goals that will come at a specific time in your life. Like your child’s education. Let’s say you started planning your child’s higher education early and your estimated SIP was INR 10,000, while you could only do INR 7,500.

The INR 2,500 gap each month will lead to a significant deviation between where you should be versus where you are in the goal. Let’s say you have a 10-year horizon for your child’s college; you will be short of INR 7 lakh for tuition fees. In these cases, you might consider opting for other financial instruments such as education loans to fund your balance.

Save more every year

This is an excellent tool for achieving your long-term goals. To save more each year, you can always use the SIP Step-up option to fund your goals. In Step-up SIP, your SIP amount tends to increase by x% (you decide on this x%). Since your income is likely to increase by a certain percentage every year, the SIP Step-up is a great way to increase your body of goals later in your goal.

Collaborate to save more

It is easier to achieve your goals if you and your partner constantly contribute to achieving them. If you plan your goals with your partner or spouse and agree on them, it is possible to enter into a joint agreement on goals such as reallocating the money, contribution amount, changing the goal amount, etc.

Study the impact of the market on your portfolio

When managing your finances, you need to understand the factors that affect your money and overall wallet. Although you may have a financial expert whose advice you believe to be reliable, you need to study and keep up to date to ensure that you stay on track to achieve your financial goals.

Update your goals and dreams

Human beings are social animals; our needs and desires change over time. As your family grows or your career progresses, our priorities will change. You may need a big car because you now have a husband and child or a bigger apartment to have room for everyone. Revisiting your financial goals or dreams can help you determine how much money you need to invest or if you need to upgrade some plans. Consider this,

Point A: You started saving for your child’s higher education when he was born. You do not know the course he / she would choose and hence you aim for an amount of INR X.

Point B: After seven years, you find that your son is good at math and would like to get a math degree from India. Accordingly, you would adjust the target amount for a math class.

Point C: After another seven years, you find that your child is prone to a statistics course. Then, you change the target amount.

Point D: Finally, upon admission, your child is taking a course in Data Science abroad and you need INR Y for the course.

In the above scenario, if you don’t update your goal frequently, there is a high chance that you are off track. Your child’s dreams are not static, as above, they may want to go abroad to graduate, which means that you have to consider the costs of currency depreciation and the high costs of living. Therefore, it is vital to reevaluate the goals and priorities to set the goal to reflect the revised goal.

Rebalancing

As you invest, some investments will fare better than others and each investment will carry a different level of risk. You will need to rebalance to make sure your portfolio always reflects your risk, which is a function of factors such as horizon, income, expenses, employees, etc. You may need to reallocate your investments to a different asset class where you believe the returns are reasonable and match your level of risk. The act is called rebalancing and is necessary to make sure you are optimized every time you are exposed to the market.

Equity and gold are inversely proportional and it can make sense to reallocate funds from equity to gold and vice versa when the swing in the economy and market changes. Also, as time goes by as you progress and get closer to your goal, it’s important to transfer money from high-risk to low-risk businesses and start recording profits in parts.

Bottom line

As an investor your job is not done when you start an investment! You need to make sure that your goals are evaluated and adjusted according to your dreams, market changes and constantly aligned with your financial needs. In addition, you must evaluate the performance of your portfolio and take corrective action to increase the amount or horizon of the investment (if possible) to reach the goal if you feel that you are not on track to reach the goal.

Finally, remember that you always have the option to consult with your financial advisor on even more ways to get back on track and aggressively move towards your goals.

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