Leaving the child with the stress of debt is the last thing any parent would wish for. Yet there are various examples where the burden of financial stress is carried down through generations. Have you ever wondered why this happens?
This is because taking out a loan is simpler and a faster solution to a financial problem. But, what is often forgotten is the mental stress and task of paying back the loan that may fall on your child’s shoulders.
While education loans can be effective and instrumental in securing a bright future, there are some ways to rise above and save your child from a student debt trap.
Save your child from a student debt trap: 9 tips!
1. Save your money
Obvious though it may sound, saving still is a habit many fail to inculcate. It is quite difficult to resist the desire of spending money when we have so many options available. Now here is the catch, spending your money can get you temporary pleasures, but it contributes nothing to your long-term goal.
Sticking to a budget, evaluating your needs, and saving your money in a high-interest offering saving account are some small steps you can take to harness this habit.
2. Invest your money
In a country of 138 crore people, only 1.2 crore people are active investors according to a report by National Stock Exchange. By not investing, you are missing out on an opportunity to grow your money and give your child a debt-free life.
3. Stick to your budget
Usually, there is a 50/30/20 rule whenever the question of planning a budget comes into the picture. It says that 50% of your earnings should go towards your needs, 30% to your wants, and 20% you save.
By following this scale, you can keep a check on your money and control the uses you put it to. Very easy and rewarding technique, if implemented diligently!
4. Monitor your Credit Card Usage
Your monthly earnings should always exceed the monthly bill that you pay for your credit cards, as simple as that! Having the option to spend, should not necessarily provoke you to spend. Always be in check of your credit limits and do not let the perks control you.
5. Create a College Fund
The cost of higher education is skyrocketing and it is an unavoidable expense. The purpose is not just to protect your child from debt, but also to have enough to support them until they are independent.
Make sure you have a sound investment plan in place today, to provide for your child’s higher education tomorrow!
6. Practice Self-Discipline
Discipline is crucial to ensure the consistency of your efforts. For instance, a newly launched luxurious car may tempt you, but knowing your needs and checking your priorities is important.
Especially when you have kids to afford reckless spending.
7. Portfolio Diversification
Investments are subjected to risk. The ROI from equity or mutual funds is highly dependent on the market conditions. Portfolio diversification, however, is one way to adjust the risk associated with your investments.
You invest in multiple securities varying in terms of risk and return involved in such a way that the overall risk is adjusted.
8. Health Insurance Cover
Have a proper insurance plan for your health in place. You can not anticipate medical emergencies, but you can plan for them wisely.
Medical bills can hugely impact your financial planning and spending. Besides, insurance coverage concerning fire, vehicle, etc. can be helpful as well.
9. Mindful about procuring finances
For individuals, bank loans continue to be the popular source of procuring finance. It is mostly a ready source to pay off big amounts. However, one should not neglect the cost associated with it.
Loans from banks are secured against collaterals. Moreover, you are obliged to pay the interest at which the loan is offered along with the principle. Therefore, this source of financial procurement would call for consistent allocation of your earnings towards the repayment. The catch is to be mindful of the quantum to ensure a debt-free future.
Financial planning, investing, saving, and budgeting can help make your life and your child’s life easy. By following the above-mentioned methods you will save your child from a student debt trap and give them the confidence to build a unique future.
FAQs
What are some tips to save your child from a student debt trap?
The first tip to saving your child from a student debt trap is to create an education fund for them. This can pay for their college in the long run and cover other expenses like books, accommodation, extra classes, and more miscellaneous expenses.
Another benefit is that your child can focus on their studies and opt for internships in place of part-time jobs if they have enough funds to support themselves.
When is the right time to save for your child’s education?
The right time to save and invest in your child’s education is to start before they are born. This allows your investment to grow with your child and beat inflation as well.
What is the most reliable way to fund your child’s savings?
The most reliable way to build an education fund for them. This helps your child in the long run and they do not have to depend on external, sources like loans or scholarships.
