Savings and Investment Tips for Higher Education of Your Child

With the cost of college education reaching new heights almost every semester, it seems you are one step behind when it comes to providing appropriate financial education for your kids. While you may have dreamed about sending your son or daughter off to college, today's rising tuition costs have forced even the most frugal parents to reconsider their priorities. When you have kids, your first priority should be to prepare them for higher education. This can't be said often enough. One of the most important responsibilities you will have as a responsible parent is to encourage your kid's financial preparation for their future. This can seem like a daunting task and possibly a little scary, but don't worry: it'll be easier than you think once you take a few steps in the right direction.

This article will give you an idea about how you can invest smartly in your child’s higher education.

Not only are families faced with the challenge of managing their finances and paying off debt, they are also faced with the restriction of where they can send their children to school. This has led to a great deal of stress on the family budget. The price of an education is only going in one direction — up!

Many parents today are wondering if they should send their children to college or if it's now worth it. They ask themselves, "Is putting my children through college worth the investment?" In addition, many are asking, "Should I consider sending my children to a less expensive school?" We've all seen media stories about how expensive it is for students to attend college.

Millennials and Generation Z (quite simply, the younger generations) are growing up in an inflated world. As they enter their 20s, they will likely have far more education than the average person. Combined with increased student loan debt and tuition costs for both graduate school and professional school, these folks are going to have their hands full just trying to survive after graduation.

A simple solution to all these problems can be smart investments by the parents. An educated and smart strategy will help them understand their investment time period and suitable instruments to reach their financial goal.

Here are the most important tips that parents need to keep in mind when investing for their child’s higher education:

1. Start Early
An obvious tip for parents would be to start investing as soon as possible. If you are looking at a goal of INR 1 crore, it may seem like an impossible or daunting task but the power of compounding can help you reach there in the shortest time possible.

A late commencement not only results in a lower corpus but might also endanger other financial objectives. If you begin saving for your kid's school in your forties, you will most certainly fall behind in the needed amount of money. Parents frequently dig into their retirement accounts to make up the difference, but this may be a hazardous decision. Only because you paid for your kids' lives does not mean they will care for you post-retirement. Apart from that, this can also put a dent in all of your plans that you have planned to do in your golden years.

The shifting nature of work necessitates an early jump. Individuals in their late-forties and mid-fifties are progressively leaving their respective working sector as younger people who are much more active, have the newest skills, as well as charge less are prepared to replace them.

2. Choose According to Your Needs
The next thing you need to keep in mind is that an early start does not necessarily mean you’ll be successful in reaching your financial goal in time. It is also similarly important to choose the right investment instruments.

For example, if you are looking at a goal of INR 1 crore in 30+ years, you can go for a portfolio that generates regular income along with some percentage of equity shares. In order to counter the ever-increasing rate of inflation, it is recommended to have some percentage of equity shares in your active portfolio. Now, if the time horizon drops to 20 years or so, you might need to increase your equity percentage in your portfolio along with a certain percentage of safe options like bonds with tax benefits² and PPF in your portfolio.

If you do not have a clear idea of the investment market, it is always advisable to invest through Mutual Funds as it offers professional fund management in exchange for a modest professional fee.

3. Playing Safe in the Short Terms
In case you are looking at a time horizon of 5 years or even less, it is recommended to invest in instruments that offer fixed income. Even though they offer low rates of return, the risk factor of these investments is very low as they provide capital safety.

Even while fixed-income securities are quite secure, you should not invest on a whim. When investing in debt securities, make certain that the liquidity factor will not be a concern. For example, the PPF can be an excellent investment but ignore it if you will require the cash in three to four years. Whereas the rewards on bonds with tax benefits² might appear appealing, these bonds have a risk called reinvestment risk. These bonds will pay out interest annually, which may need to be invested again at lower rates if interest rates decline.

You can opt for a professional investment advisor if you have such short terms to invest and get results.

4. Monitor Your Portfolio and Goals
One major mistake most parents do after investing is that they leave their portfolio as it is. This is the wrong approach. You need to track and review your portfolio regularly. Examine your investment portfolio to evaluate if it is on pace to accomplish your objectives. If you fall short, your contribution may have to be increased. Maintaining track of the profitability of the investments in your active portfolio should be part of your yearly analysis. If a fund is underperforming, it is recommended to not sell it right away.

Another popular mistake is not monitoring the goals. You should also monitor to see whether the amount needed to reach the objective has increased. The education aim is divided into two parts: tuition and living expenses. Any of these may climb quicker than expected. You must determine if the present inflation rate which you have estimated is a reasonable approximation.

5. Approach Your Goal
The investment cycle is never static, particularly when investing for a lengthy period. Equities funds are commonly recommended for people with a moderate investment horizon. Nevertheless, about five years ahead of your target deadline, you should begin transferring money from stocks to the security of debt funds. Begin transferring funds from your stock fund to a valid short-term debt fund in a methodical manner. This highlights the importance of acting cautiously while saving for a critical objective that cannot be delayed. Bear that your kid's college entrance date is set.

As you can see, saving money and preparing your kids for college can be done with no effort at all. Maybe you'll even enjoy yourself while you're doing it! Staying involved in your kid's future financial affairs is one of the most important things you can do as a parent.

The future for your children is bright, and you have no reason to feel uncomfortable about sending them off to college. With the right preparation, and a little luck, they will be well equipped to handle all college has to offer.