As a parent, you always want to send your children to a good college for their bright future. But as soon as you think of a good college, the skyrocketing education costs put you into worry. After all, it’s a matter of real concern, and you would definitely need money in the future to meet education expenses. Hence you must start saving money from today to afford the college of their dreams.
Saving money for your children’s education isn’t a cakewalk. It requires a lot of planning and consistent execution. Here’s how to start saving for your children’s college education today.
Evaluate your children’s future need
To meet your child’s education expenses in the future, you first need to start saving money from now. But before you start saving money, you need a comprehensive plan to evaluate how much money you will need to fund college education when the time comes.
When you evaluate the fund required, ask the following questions:
- What does the current education cost?
- What is the current and expected inflation rate?
- What is the period of investment? Etc.
Answering these questions will help you calculate the expected fund required. It will also guide you through planning your savings portfolio.
Start investing as early as possible
We all know that inflation is rising more than expected and making education expensive. It is obvious that at the time when your children would start going to college, education will be even more expensive. Hence, as a parent, you need to start investing for your children’s future education as early as possible to give adequate time for investments to grow.
So, the important question is what’s the best time to start investing in your child’s college education. The answer to this question is when you are aware of having a baby. For example, if you plan to have a baby after four years, starting an investment from the current financial year would be the wisest decision.
Many of us do not think of starting early and miss the compounding effect. If you invest after having a baby (say after four years, as mentioned in the above example), you would lose all these years’ compounding interest. A delayed start may result in smaller savings as well as it will affect other financial goals. So start as early as possible to reap good benefits.
Make a Good Portfolio
Saving your money in FDs is not enough to reach the funding goals of children’s education. Instead, you should distribute your money among different investment options for a higher return. While you are choosing investment options, you must check all the details such as risks, compounding rates, growth, and benefits, etc. The period of investment is also an essential factor in deciding the investment option. If you invest for a long period of equity options, SIP – Mutual funds would be the best option for higher returns. For short-term goals, invest your money where the return is guaranteed. Since equity options are more prone to market risks, you should not consider it for short period investment. It would be best if you mixed all these options according to your financial goals.
Having a portfolio with the right set of investment options ensures a higher return and saves you from future risks. When you are sure of starting investment, consult your financial planner, and make a good portfolio for children’s education.
A disciplined investment is one of the most critical factors which helps you achieve your financial goal on time. Whether it’s a long-term or short-term goal, you will need a disciplined approach to build the fund for your children’s education requirement. It is crucial to plan meticulously and be consistent whenever you begin investing. Otherwise, you will not be able to reach your investment goal.
Review the portfolio
Once you are done with your portfolio making and started investing accordingly, you must review it at least once a year. Since inflation rises every year, the amount required for the goal may increase with inflation. If the goal falls behind, you may need to increase your investment. You also need to check the performance of every fund of the portfolio. If a fund is not performing for a long time, you need to invest its money in other performing funds. You should keep monitoring your portfolio and rebalance it accordingly to meet the goal.
Approach the goal safely
Most of your investment portfolio consists of equity funds when you invest in your children’s education’s long-term goals. Since equity funds are very volatile, you should rely on fixed-income instruments that offer a lower rate of return when approaching the goal. However, these funds offer guaranteed returns and safety of capital. As you approach the goal, say you are five years before the goal, start shifting money out of equities to the short term fixed income funds. It will help you reach your investment goal safely without letting stock markets jeopardize your child’s college education.
There are so many investment options available in the market as per your portfolio. Do some market research before choosing an option and start investing smartly to give your children a good college education.
I know this topic raises so many questions in your mind, like why should I worry about my child’s education now? Isn’t it so early to invest my brain here? Etc.
Believe me, this is the best time to update yourself with such knowledge so that when you become a parent, you can easily plan for your child’s future.