An Economic plan for your children’s education

An Economic plan for your children’s education

In order to formulate an economic plan, you must define your short-term and long-term goals and start saving as early as possible.

An average person spends up to Rs. 38 lakhs on raising a child from birth to 21 years of age, according to EduFund Research. The cost of these expenses has been increasing due to Inflation. Moreover, the expenses grow with a child.

The child needs special attention in the initial years which increases the food and healthcare expenses. As the child grows rapidly, clothing expenses are higher. When a child transitions from school to college, education expenses increase. Education becomes the biggest expense for a child while reaching adulthood.

The best way to prepare is by investing in an asset that grows faster than the inflation. This can be done by aligning your short-term and long-term goals. Short-term goals include those that can be achieved in less than a year such as your child’s immediate school or tuition fees.

Long-term goals are those which include your child’s college fees or any other education-related expense that will come up after sometime.

Achieving short-term goals

For a school going child, there are many expenses besides school fees that are essential and need to be fulfilled. These must not be overlooked and we must plan properly for these and save effectively. Here, you will have to accumulate the money needed in a year’s time to use during the next academic session.

This can be achieved by investing in a mutual fund with high liquidity and safety. It must also provide capital appreciation. Thus, the best option is debt funds as they are significantly less volatile.

Achieving long-term goals

Higher education expenses are very high and include expenses like accommodation, clothes, utility bills, groceries, transport, books, food, etc. Only 40 per cent of the expenses account for fees. 74 per cent of the total amount on an average is spent on raising a child. Moreover, the cost of education is increasing at a rate of 10 per cent per annum.

Starting your investment early will offer compounding benefits that will help you accumulate your corpus with a minimal monthly contribution. The ideal way to invest is to start with high-risk funds and accumulate wealth. Later, when you reach closer to the goal, you have to move to capital protection.

Stages to long-term goal-based investing

Accumulation Phase: The risk appetite of an investor is high as capital grows at a much higher rate. Investment faces high volatility with good gains. However, with high reward, there is high risk.

Capital protection phase: The capital shifts from rapid allocation to safer funds. These include balanced advantage, conservative hybrid, etc. In order to reduce the volatility of the portfolio, Debt funds are included. Thus, the focus is on preserving gains, beating inflation and maintaining liquidity.


In order to formulate an economic plan, you must define your short-term and long-term goals and start saving as early as possible. Goal based investing will make your life easier. However, for different goals, the savings rate will be different.

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