Time slips through our fingers like grains of sand. In the blink of an eye, days turn into years. Parents cherish the childhood of their children.
But as said, we don’t realize how time passes. Kids grow up, and as they grow up, the expenses also increase especially the education-related costs.
And if you have a kid between the ages of 10-15 years, you will have to prepare for your child’s college. The post-graduation is in the line. In this article, we will guide you on preparing for these expenses.
If you have a kid between the age group of 10-15 years, his/her college will be due in the next 3-5 years. Apart from that, there may be expenses such as application fees, expenditures on electronic gadgets like laptops or tablets, etc.
There will be living expenses that you will have to incur. And after 6-8 years, you might have to incur the expenditure for post-graduation.
Education inflation comes under the top category, i.e., one of the highest among all the categories. Adding to the burden, if your child plans to go abroad, rupee depreciation increases your cost.
The only way to prepare for this expenditure and save your child’s future is to start investing. As the Chinese proverb says, “The best time to plant a tree was 20 years ago; the second-best time is now.” Similarly, it would help if you had started the investing journey much before.
But if you have not, then do not waste your time. Start investing right now. Something is better than nothing. But how to do that? Let us see.
First, you need to identify the expenses you will incur along with their expected timing. As mentioned earlier, these can be graduation expenses, living expenses, etc. Using the college cost calculator, you can approximately estimate how much it will cost in the future to pursue the desired course for your child.
To estimate the other expenses, you can take the help of our SIP calculator by using which you can estimate how much you will be required to pay in the future and the required amount to invest monthly to reach your goal in the future by considering the inflation.
After identifying the expenses and their timing, you should bifurcate them as per the estimated timing of those expenses, like expenditure to be incurred within a year, in 1-3 years, after three years, etc.
This bifurcation will help you determine how much risk you can take while investing. It is considered that an investor can take a higher risk while investing for the long term, and the risk appetite reduces as the time horizon decreases.
There is a simple reason behind this. A long-term time horizon allows you to recover in case anything goes wrong.
The only thing that remains is to start investing as per your risk appetite. But how to select funds? As said earlier, you need to determine your risk appetite, and accordingly, you can invest.
You cannot take the risk aggressively for expenditure to be incurred within a year. So, debt funds such as liquid or money market funds should be considered. For expenditure to be incurred after one year but within three years, you can take a little more risk.
Hence, you can consider investing a small portion of your investments into equities. This can be better done by investing in hybrid funds such as conservative funds or balanced advantage funds.
An aggressive investor can consider investing in multi-asset funds as they provide allocation to various asset classes such as equities, debt, gold, etc. And lastly, for expenditures to be incurred after three years, such as post-graduation expenses, you should consider investing in equity mutual funds.
Equity mutual funds provide excellent growth potential with reduced volatility over the long term. Small cap, mid cap, flexi cap, or focused funds can be good options for investing for the long term.
This is how you can start investing in your child’s education. However, you need to keep in mind a few points.
- First, you need to monitor your portfolio regularly and rebalance it. As you come closer to your goal, you will have to reallocate your money from high-risk funds to low-risk funds.
- Second, if your child wishes to go abroad for graduation or post-graduation, it will be better to invest in USD as your exchange rate risk mitigates automatically. The procedure to estimate the expenditure and amount of investment remains the same.
- And lastly, if you are too late to start investing, you might be required to look for an education loan.
However, you should start investing even if you are late so that you can create at least some corpus for your child’s education rather than nothing.
Hopefully, this article has given you some insights and helps you plan better for your child’s education. Start investing!
