Some parents turn to banks to ease the financial burden with the help of credit cards as they offer installment plans at a low interest rate. However, to avoid mounting debt, parents should have a strong financial discipline when using credit cards to cover school fees.
Then, there is the challenge of higher education costs –the lack of funds shouldn’t come in the way of acknowledging your child’s dreams. To save effectively, It’s Important you have a solid plan. Here are some simple steps to help you get started:
Step 1: Research the cost of education to get an estimate of eventual costs
Understanding the current cost of education depends on the level of education you want your child to get, and the type of college/university. Also, determine whether your child will study locally or abroad for graduate and post-graduate degrees and at which institutions.
Step 2: Determine the time horizon
For investments, time is the most crucial factor. A time horizon is the number of years you have left to save – between your child’s current age and when they start university.
Step 3: Consider the impact of inflation
Many studies across different countries have shown that the rise in cost of education has galloped past the rise in inflation. You need to factor in the rate of inflation in the country that you are considering.
Step 4: Pick a rate of return that you would need
Picking a reasonable rate of return on your investments is important. This rate should be higher than the rate of inflation so you can preserve the purchasing power of your money. E.g. A mutual fund could give a higher rate of return than fixed deposits. Although the rate of return may not be fixed, you can take an educated guess on the long-term returns of a moderately risky mutual fund – like the My Future Saver plan (an investment-linked insurance policy).
Step 5: Calculate the required monthly savings
Finally, with the expected rate of return and the final estimate, you can calculate the exact amount you need to save monthly. An online calculator can help figure out how much you will need to save every month.
Follow these 5 steps to calculate the exact amount of monthly savings you need to meet your child’s higher education goal.
You can also talk to our Wealth Specialists to assist you further with your child’s education savings plan.