What is the best time to start investing in your child’s education?
In the previous article, we read about why choose SIP to save for your child’s higher education. In this article, we will read the best time to start investing in your child’s education.
As an Indian parent, you aim to prioritize your child’s needs before yourself and strive to provide them with all the comfort and luxury in the world. Eventually, all the comfort you bring to your child’s life exemplifies how protective you are of them. And, out of all the beautiful things that you do for them, education is the greatest gift you give.
Yet quality education comes at a high cost, especially in an economic climate that is affected by the global economic crisis and political turmoil. These events affect your purchasing power, devalue your savings and affect your lifestyle and future needs. The only way to escape this vicious cycle is through smart planning and saving on time.
Why is it important to save and invest early in your child’s education?
The simple answer is inflation. Inflation in the education sector is escalating at a scary rate. It is painful to see that your hard earned money will likely lose its value over time and may not suffice to protect your child’s future. Thus, the earlier you start planning your child’s education journey, the better it will be for their bright future.
In other words, it’s time to not only save but grow your money to meet the needs of the future. Investing enables you to increase your money and retain your purchasing power. However, you must invest smartly.
There are several aspects associated with investing. The two main factors that affect your investment strategy are Risk and Return. The general rule of investing is higher risk and higher return.
Based on your risk appetite, and short-term and long-term needs, you can accumulate your desired corpus over time. Another powerful rule of investing lies in longevity; the longer you stay invested, the greater your reward.
Here is how investing early can yield greater returns
Kartik is blessed with a baby girl. After a month of her birth, he chooses to invest a monthly SIP of Rs. 5,000 at 10% for 20 years. This way, he makes a total investment of Rs. 12,00,000 over the said period.
On the other hand, his friend Pratyush waits for his son to attain the age of 10 to start investing. He invests the same amount at the same rate of return but for a smaller period. He makes a total investment of Rs. 6,00,000 over ten years.
When their kids attain the age of 20, Kartik receives an accumulated corpus of Rs. 38,28,485. Whereas, Pratyush receives Rs. 10,32,760 as a return on investment. The growth rate for Kartik has been 3.2 times the investment, whereas Pratyush could receive only 1.72 times. But why is there a vast disparity despite the same amount of investment?
The disparity is a result of time. The longer your money stays invested, the more you get in return. That’s the magic of compounding! So, the best time to invest in your child’s higher education is NOW!
The longer your money stays invested, the more rewards you yield. Let’s find out what are the benefits of early investing.
4 benefits of early investing
1. Time Value of Money
When we talk of money and investing, time is an invaluable asset. The amount and the duration for which your money stays invested contribute significantly to the education corpus. The longer it stays invested, the higher return you get.
2. Acceleration through Compounding
Compounding is the return that you get on your return. It means you don’t just get the return on what you spend out of your pocket but also what you earn from it. Resultantly, your corpus gets richer with time.
3. Manageable Sums
You can start your investment journey early with a manageable sum. A delay would put an unnecessary burden on your pocket. Whether you start early or later, you need to save to meet the growing cost of education. Why put yourself into unnecessary trouble?
4. Higher scope for modification
In the above example, Kartik had assumed Rs. 40,00,000 to be the cost of his daughter’s higher education. However, when her daughter is ten years old, he realizes that the price may rise to Rs. 50,00,000.
This situation will not bother him much because he can quickly meet the increased requirements. But things would not go the same way for Pratyush because he will have a considerable gap to fill just because he started late.
The education industry is highly competitive; over the last three decades, the cost of higher education jumped more than 500%.To ensure your child has all the amenities and a bright education, you need to start working on your savings. Our advice is to start easy, start small, but start early!
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