Child's education: How much should you save every month?

If you would like to save Rs 40 lakhs, 12 years from now for two children, you need to save about Rs 20,000 per month.

As Indian mythology taught us, having a singular focus on the goal was what made Arjun different from the rest. When he aimed at the target, he could see nothing but his goal. Almost all planning including financial, start with understanding what the goal is.

Many of us would agree that parenting is a tricky job. Even trickier is planning for your children’s higher education.

I’m perplexed at wealth managers asking me, the customer, how much I need to save for my children’s education. I have 2 sons aged 9 and 5. Like most fathers with small children, I have no idea what they’re going to do when they grow up.

I do not know what discipline they might choose, which country they’re likely to pursue it in and when they might actually firm up their plans (and where they will get admissions!).

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And this makes things very complex. If my older son decides to do his post-graduation, say an MBA in the USA, we will need almost Rs 1 crore (Rs 10 million) at today’s prices – more than twice that by the time it’s time for him to start.

The same course in India costs less than Rs 20 lakh today and so Rs 50-60 lakh should be enough by the time it’s time for him to get started. The disparity in undergraduate studies is even more because it’s spread over many more years and the range of universities you could choose from is wider.

So, where do you start? The only thing clear enough is that you have to start somewhere. As you do with most goals is that you prepare for the worst while hoping for the best!

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The first step is to understand how much you need to save and put aside every month to reach a particular goal (let’s call it a sum of money needed at the end of a particular time period or corpus).

So, to get to a corpus of Rs 1 crore (Rs 10 million) 15 years from now for my older son I need to save about Rs 35,000 per month if my savings gets an annual return of 7%.

If this amount of savings seems too high, I should start with what seems affordable for now and be prepared to either increase my monthly savings in the future or take a loan for the balance between my future requirement and the corpus built up by then.

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The other way to look at this is that I should save atleast as much as I would need to pay for undergraduate and postgraduate courses in India. So, if, for both children I want to get to Rs 40 lakhs, 12 years from now, I need to save about Rs 20,000 per month (at a 7% return).

Having understood this, you need to select a set of products to invest in – something your advisor or banker can easily help you with. Since you’ve understood your basics, product selection becomes a lot simpler.

The best solution of course, is if our children turn out to be brilliant enough to get complete scholarships, in which case we can convert savings planned for our children’s education into our retirement funds!

Alas that’s wishful thinking so we might as well get started right away. 

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Manish Shah is Co-founder and CEO of Bigdecisions.in