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

There are some common financial goals that everyone is working toward—like buying a new car or paying for your child’s degree abroad. What differs is the level of planning required to achieve these goals. How much money you set aside for each goal, how often you reevaluate your portfolios to check you’re on track, or how often you check that all of your goals are meeting your set time limit — that’s what sets you apart from other savers.

Your checklist of things to do when your planning gets out of hand

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

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

Check if you have time on your side

You can always postpone certain destinations, like a trip to the Bahamas, by a couple of years. This gives you time to raise funds and execute plans when you are ready, but there are events that cannot be delayed. For example, your child’s bachelor’s degree. This is inevitable and a defined goal. While you can push back a master’s degree by a few years, you generally can’t push back a bachelor’s degree. To achieve such goals, you should keep an open mind and consider different alternatives to achieve them.

Analyze if you can narrow your goal

This works wonders when you put your affordability first rather than your entitlement. Assuming you’ve always dreamed of giving your child the best education, but lack the necessary funds to ensure your child still gets a quality education, you can change the preferred college to one that suits your budget/ current situation corresponds to target corpus. If your child’s college costs INR 40,000 but you can only save INR 25,000; You may consider changing colleges based on your affordability.

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Check if you can increase your investments

As an investor, you always want your portfolio to balance your risk tolerance and provide you with enough returns to reach your goal. But the market is not as rosy as we might think. If you find yourself off course, try to see if you have an opportunity to add to your portfolio.

A blanket top-up in a choppy market often helps get you back on track. This only applies if you have time by your side. Consider this if you’re saving for a child’s education, and in 2021 and 2022 – market volatility has eroded the wealth of your portfolio. To get on track, you can top up your portfolio with a lump sum if you have more than five years to reach the goal you set.

Find alternative solutions to fund your goal

This is more applicable to inevitable goals that come at some point in your life. Such as your child’s education. Suppose you started planning for your child’s higher education early and your estimated SIP was INR 10,000 while you could only afford INR 7,500.

The monthly gap of INR 2,500 creates a significant discrepancy between where you should be and where you are on target. Let’s say you have a 10-year horizon for your child’s college; You are missing INR 7 lakh for college fees. In such cases, you can consider opting for other financial instruments such as student loans to fund your balance.

Save more every year

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

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Work together to save more

It’s easier to achieve your goals when you and your partner are both consistently contributing to them. If you plan your goals with your partner or spouse and agree on them, a joint agreement can be reached on the goals such as redistribution, contribution amount, change in target amount, etc.

Examine the impact of the market on your portfolio

When managing your finances, you need to understand the factors that affect your money and your overall portfolio. While you may have a financial expert whose advice you trust, you must do your research and keep yourself informed to ensure you stay on track to meet your financial goals.

Update your goals and dreams

Humans are social animals; Our needs and desires change over time. As your family grows or your career advances, our priorities will change. You may need a large car because you now have a husband and child, or a larger apartment to accommodate everyone. Reviewing your financial goals or dreams can help you determine how much money you need to invest or if you need to update some plans. Consider it,

Point a: You started saving for your child’s college education when they were born. They don’t know which course he/she would choose, so they are aiming for an amount of INR X.

Point B: After 7 years you realize your child is good at math and you want to do bachelors in math from India. Accordingly, you would adjust the target amount for a math degree.

Point C: After another seven years, you find that your child is leaning towards a course in statistics. This changes the target amount.

Point D: Finally, at the time of admission, your child is taking a course in data science abroad and you need INR Y for the course.

In the scenario above, if you don’t update your goal frequently, there’s a high chance you’re off course. Your child’s dreams are not static as above, they may want to go abroad for a degree which means you have to factor in currency devaluation costs and high cost of living. Therefore, it is crucial to reassess your goals and priorities to set the goal in a way that reflects the revised goal.

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As you invest, some investments will perform better than others, and each investment carries a different level of risk. You need to rebalance to ensure that your portfolio always reflects your risk, which depends on factors such as horizon, income, expenses, dependents, etc. You may need to reallocate your investments to another asset class that you believe will provide returns that are appropriate and commensurate with your level of risk. This process is called rebalancing and is required to ensure you are optimized every time you are exposed to the market.

Stocks and gold are inversely proportional and it can make sense to reallocate funds from stocks to gold and vice versa as the economy and market change. Also, it’s important that over time, as you make progress and get closer to your goal, you shift money from high-risk assets to low-risk assets and begin to book partial profits.

bottom line

As an investor, your job doesn’t end when you start an investment! You need to make sure that your goals are evaluated and adjusted according to your dreams and market changes, constantly aligned with your financial needs. In addition, if you feel you are not on track to achieve this, you must evaluate your portfolio’s performance and take corrective action, either increasing your investment amount or horizon (if possible) to achieve the goal to achieve goal.

Finally, it’s good to remember that you always have the option to consult with your financial advisor about even more ways to get back on track and aggressively move toward your goals.


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