Minggu, 14 Februari 2010

Financial Planning for your Child's higher Education...

Financial planning for your child's higher education abroad is in important planning.

if you have a school going child than don't think that you have a time so you will manage the education fee for your child.

you have to consider into account Inflation while counting the future cost of your child's higher education abroad.

let's take the example of Rakesh.
Rakesh is studying abroad. He is doing his masters at New Jersey state.
Today when i am writing this article, the total cost of MS eductaion in USA is around Rs.25,00,000 (25 Lacs). including lodging, food, tution fees, accomodation charges and travelling & Visa expenses to go to USA.

Now if we consider the inflation at the rate of 7% (at present when i m writing this article the inflation in India is 8.24%..).

so what do u think that after 20 years how much money you will need for your child's higher education abroad.?

well... if we run the compound interest calculator than the figure goes beyond Rs 1 Crore.

so if inflation is 7% per annum than today u need Rs.25 lacs for your child's higher education at abroad but u will need more than Rs.1 Crore after 20 years for your child's higher education abroad.

So please take into account the Inflation factor before you plan your child's education expense after a decade or a two.

now let us calculate the amount and rate of return (%)you have to invest to achieve this goal.

if we consider that Indian equity market will give you 20% Compounded annual return for next 2 decades and than if we run the compound interest calculator than u need to invest Rs. 4000 per month for next 20 years in some good well diversified equity fund to achieve this goal.

it means that u need to invest Rs. 4000 * 12 months * 20 years = Rs.9.60 Lacs over 20 years to achieve the goal of Rs.1 Crore after 20 years.

but if y start investing 10 years late than to achieve this amount in a decade u need to invest Rs. 25,000 per month to achieve this goal.
means u have to invest Rs. 25,000 * 12 months * 10 years = Rs. 30 Lacs to achieve this goal.

so what it suggests?

it suggests that,

- start early or as soon as possible.
- Compound interest is so powerful over the time that it will multiply your money in a breathtaking way.
- so don't take it lightly and start svnings & investing now for your child's higher education.

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