Childer Education Guide
Most parents—including many who are financially secure—worry a lot about how to fund their children’s college education. Unfortunately, funding higher education is a daunting task for most families—a task made even more difficult because many people are saving simultaneously for other goals, such as retirement. Unlike retirement savings, college savings don’t generally receive much support from governmental or corporate sources. As a result, funding a college education may end up being the single greatest financial burden you face as a parent. Is this situation really as bleak as it seems? Not at all. In fact, careful plans can make college funding manageable—a challenging but feasible part of your overall financial strategy.
In this section we discuss what you need to know to fund your children’s higher education and how to complete task easier.
To reach your goals for college funding, your best bet is to start your child’s college fund as early as possible. You probably find it difficult to put away money for a distant goal when so many more immediate expenses drain your resources and leave little or no surplus to invest. Still, starting early provides you with your best opportunities. Like many parents, you may find that when your children enter school, you have some extra money. Some parents end up financially better off because of reduced child-care costs. Setting aside the extra money for your children’s higher education makes good sense.
Determining how much you’ll need
To anticipate what the college costs will be when your son or daughter starts school, you should first determine what these costs are today, based on the college/university or type of course you expect your child to attend. Most college will provide you with that information upon request or on its website. With this information, you can begin the process of determining how much money you’ll need in the future, as well as how to fund what you need.
The important thing is to ensure that you have a plan to set aside as much money as you can as early as possible to fund your children’s college educations. When estimating how much you’ll need in the future for these costs, you will need to forecast inflation—and the inflation rate for college costs may be higher than the average inflation rate. Therefore, be sure to estimate high. If inflation is 5%, for example, you might assume that college expenses will increase by 7% per year. A good rule of thumb is to assume that tuition costs will increase by at least two percentage points more than inflation each year. However, the rate could be even higher.
As a result, it’s best to try to get information directly from the specific college or colleges in which your child is interested. Request information regarding tuition, room and board, and other college costs for the forthcoming year, as well as what their past and current increases have been compared to inflation. The key is to obtain as much accurate information as possible. When in doubt, estimate high. The only downside of guessing high is that your fund may end up larger than you need, in which case you’ll have some money left over to help fund other future goals, such as your children’s weddings or your retirement.
Developing a savings program
The simplest way to save for college costs is to set aside an appropriate sum that will grow until it’s adequate to pay all your children’s college costs. However, most middle-class simply don’t have enough money sitting around to invest a lump sum toward college funding. Even though there may be advantages associated with investing a larger amount of principal early on, you may have to proceed by other means. The most common programs for accumulating college funds involve investing in a longer-term, more systematic way.
If the college costs will begin more than 7 years in the future, you can invest your money using any investment vehicle that meets your risk and return criteria. Bonds, stocks, and mutual funds will all serve your purposes. As the payment dates approach, however, the need for liquidity becomes more important. Therefore, it becomes prudent to change from stocks or debt mutual funds to debt with specific maturities (FMP or Bank FD) or cash investments (Like Liquid Fund).
Key points to keep in mind
- Begin the process of saving and investing early. This will enable you to create an adequate corpus for the fulfilment of your children’s desires and ambitions.
- Before preparing a financial plan, you must evaluate your child’s future needs, and then start working towards chasing those ‘need based goals’. Forecast the expenses that may arise
- Follow a sensible approach to fulfill your responsibilities towards your child’s education.Don’t follow the herd, because each one’s financial health, circumstances, goals are different.
- Never dip into the funds saved for your other priorities (Retirement, Medical expenses, Housing rent etc.) to fund your child’s education. It would be sensible to plan your finances better