Planning for Your Kid's Higher Studies? Steer Clear of These Common Errors

A majority of parents now prioritize their children's higher education due to increasing awareness of education expenses. They understand that proper investment planning needs to begin early to achieve their education funding goals.

Many parents face financial difficulties which prevent them from fulfilling their educational aspirations. A few wrong decisions can result in insufficient funds which become impossible to fix later. Parental attention needs to focus on proper education planning for their children.

Parents who plan to finance their children’s higher education need to avoid these key mistakes:

Delayed Start

Parents should view funding their children's higher education as a financial target which requires planning between 16 and 20 years. Most parents have a mistaken understanding about their time availability which leads them to postpone their investment decisions. Your investment will lose its compounding power and you will need larger sums to invest if you postpone beyond a single year.

Beginning your investment when your child is born with an average 12 per cent return rate requires monthly contributions of more than Rs 5,400 to accumulate Rs 50 lakh over 20 years. The delay of one year will force you to pay about Rs 6,200 every month while postponing your investment by five years would require you to spend approximately Rs 10,500 each month.

A decade-long delay will force you to invest Rs 22,300 each month which represents four times the initial investment requirement. Early action serves as a key factor to reach success.

Unplanned Investments

Maintaining an investment sum without connecting it to your targeted financial objectives will prove to be ineffective. You need to establish the precise sum which your objectives require. A monthly investment of Rs 1,000 in an equity mutual fund with a 15% CAGR will yield Rs 13.29 lakh after 20 years even though you need Rs 50 lakh for your children's education. Your goal requires you to invest Rs 3,800 monthly to meet your deadline.

Overlooking Inflation’s Impact

The lack of inflation consideration leads people to underestimate the funds they will need. The Rs 10 lakh course fees from today will definitely increase during the next two decades. The cost of education will rise to more than Rs 27 lakh when you calculate it with a 5% annual inflation rate. If the inflation rate goes up further, that would result in even higher costs. The initial step in successful investment planning requires considering inflation because it directly affects your future financial requirements.

Choosing Conventional Investments

Since higher education funding extends over a long period, it is best to invest in growth-oriented assets through direct equities or equity mutual funds for superior returns. Investments that generate lower returns through traditional methods will slow down your progress while making you susceptible to inflationary effects.

Failing to Factor in Unexpected Costs

The majority of parents concentrate only on paying tuition costs, yet they neglect the necessary expenses of accommodation along with food and lifestyle expenditures. The overall funding requirements for higher education need to include all additional expenses. The absence of planning for increasing costs due to inflation will dramatically affect your investment portfolio.

Avoiding common mistakes in planning for children's higher education leads to achieving the desired results. Your investment expenses will decrease while you will reach your financial objectives effectively and with diligence. The recommended method for determining your investment requirements involves taking inflation into account. This method enables you to handle your finances more easily.