Unbiased Advice … Always
The other day Mr. Ajay has approached me to plan education funding for his son Ritesh. Among all the financial goals he has, this one is of utmost priority, I found. I enquired him about more details. And it opened a can of worms.
Education Planning
1) Estimation: We know the prices of essential commodities and services very well, but whenever you ask someone about educational costs you will find 9 out of 10 is clueless. This is more in case if your child is too young. Naturally then you do not care to know about the current cost of funding education in different streams. You can never guess which field of study will excite your child in future. Costs actually vary a lot among different streams. Forget variation or range, when someone is not even sure of costs of most sought after courses or what should be an intelligent guess, then planning for the same is really very difficult and challenging.
2) Review: As the approximate estimation may not be very close to real figures, it is always recommended to assume on the higher side. Better safe than sorry. Review is important to all financial planning services – for education funding plan this is even more important and critical. So required investment can vary a lot over the years as facts and figures will be more fine tuned over the years.
3) Inflation: There are other areas of concern too – inflation. In education costs, the inflation ratio often increases by leaps and bounds and do not follow the standard inflation index. So what should one assume as inflation here. Say, if you assume 10% inflation here, in most cases investment to be made would go out of budget. In such cases you can start with an assumption of 6-7% and make up for the gap, if any, in subsequent years with increased investments. But then, it has to be monitored very closely and reviewed regularly.
4) Postponement: Can you postpone the years of need in case of education funding? No. You can postpone your years of retirement. You can think of some source of income in post-retirement years. You can think of compromising with your lifestyle needs also. But in education funding, none of these is going to work. So the thumb-rule is – do not postpone the planning by any means. If your budget does not permit now to make the required investment, start with whatever investment you can make. Of course this is not a solution but you will be in a far better situation afterwards than those who decides to postpone.
5) Flexibility: As evident from the above areas of concern, flexibility has to be there in the process to accommodate factors which were unexpected and un-accounted-for so far. In any rigid, packaged solution (read Insurance Policies), this is never going to be there and thus really prove fatal. As funds might be needed in very sort notice also, sufficient liquidity has to be there in the corpus to take care of such situations.
So the bottomline is, start planning for your child’s education immediately and stay tuned!