Planning for your child’s education

As parents, you should prepare for your child’s career aspirations with a financial plan that provides monies at key educational milestones.

Every parent desires the best for their child – good education, quality of life and a great future. In many cases, the emphasis on quality education take precedence over several other financial goals in a family. It thus becomes very important to carefully think about the finances necessary for your child’s education from school through college and in some instances, it could also include higher education in India or abroad. Yes, the expenses may seem daunting, but if you plan and start early, chances are you will breeze through the monies when you need it.

Even dual income households could encounter a phase in life when the household is run on single income for extended period. Although having an emergency fund helps, your first financial brush with parenthood should be supported with expenses to manage the pregnancy and child birth. Despite these facts, new parents run amok looking for what’s best for their baby, regardless of the fact that they might wipe out their savings or even put many of their other financial goals at risk.

The pre-school to schooling years

The first couple of years go by with expenses on vaccinations, clothes that children outgrow faster than you can imagine. Throw in the birthday parties, gifts and return gifts, and you can start feeling a pinch in your savings. It is also your natural instinct is to provide the best for your child – what they eat, what they wear and the habits they form. The desire to provide them with the best also extends towards their education.

If you are taking too long to choose a play school, it won't be long before the nursery admission frenzy hits you. If pre-school years are any indication, then education costs are seemingly unstoppable and they go only in one direction - up. While it’s easy to accommodate additional expenses for day-to-day activities with the birth of the child, you need to understand that your disposable income is going down and expenses are on the rise.

The regular expenses during the school years will be on fees, clothes, books and any other activity that your child might take up. If your child is inclined towards any sport or activities such as dance, music, painting and so on; you need to put aside some amount for the same. There are also chances your child may need additional tuitions or coaching if they are weak in any subject or are aspiring for professional studies which require preparing for entrance exams. If not planned well, your finances may get stretched to keep up with expenses for such activities.

The college years

Unless your child manages to get a full scholarship or admission to a premier institute where tuition fees are not too steep, be prepared to shell out a few lakhs on college—and several lakhs if a professional course is involved. Depending on what your child plans, they may also go in for a post graduate programme or a specialisation, which could add to the monies required. Plan in advance to have monies when your child is approaching the age of 17-18, which is when most of them enter college. Start planning early by creating a financial cushion (See: future value of education costs) taking into account inflation, which is higher than usual when it comes to finalising education costs.

In case if you are planning to send your child abroad for education factor in the foreign currency involved, especially the fluctuation of rupee against the currency in which you will end up paying. Like any other financial goal, you should ideally start planning for your child’s education expenses early on. Not only will you benefit from saving small sums regularly over the years, the power of compounding will also do its bit. We have said it earlier that unlike other financial goals such as a vacation or a car upgrade, which can be deferred by a few years, you cannot afford to do such a thing when it comes to your child’s education.

Going by the Indian family traditions, chances are that you will also incur wedding expenses at the time your child decides to get married. You may also be their first investors, if they decide to start a venture of their own. For many Indian families, the wedding of their child is a big celebration, which too needs to be planned for to have the financial resources when required.

You can execute a financial plan to build a corpus for your child’s education or future expenses by investing in mutual funds through SIPs. You could also add lump sum contributions to mark special occasions like your child’s birthday or festivals when they may get gifts from elders.

Having a child is a blessing, but raising them needs to be planned right. To get an idea about the costs that a child will bring in to your life internalise it fast that you will need at least 20-25 years before your child starts earning. In all this, don’t forget that to enjoy your years as a parent, you need to plan your finances even as you start planning a baby.