How to Save Money for a Child's Education?

Saving for a child's education can be a daunting task, especially now that the cost of education is constantly on the rise. However, with the right approach and mindset, it is possible to save enough money to ensure children get the education they deserve.

Thus, this guide discusses various ways to save money for a child's education.

1. Create a Monthly Budget

Parents should refrain from splurging by making a monthly savings budget and strictly following it. Creating a budget can help you redirect money toward your child's education in the following ways:

• Make a list of all monthly income and expenditures.
• Identify areas where you can cut back on expenses.
• Boost income via part-time jobs or side businesses.

2. Start Investing as Early as Possible

Saving for your child's education can be daunting, but starting early can make a big difference. Parents can choose government-funded educational schemes like the 'Sukanya Samriddhi Yojana’ for daughters. Here are a few tips to get started:

• The earlier you begin setting aside money, the more time it has to grow.
• Consider setting up a dedicated savings account for your child's education.

3. Invest in Education-Specific Funds

Investing in education-specific funds can help save money for children's education. Furthermore, parents should consult a financial advisor while looking for investment options. Here are some financial instruments to look out for:

• Mutual funds that invest in educational institutes.
• Firms that provide educational services.
• Invest in the stocks of educational companies.

4. Take Advantage of Tax Benefits

The Income Tax Act offers tax exemptions for education-related expenses. Here is what parents need to do:

• Section 80C is available for deductions on education-related costs.
• Research tax-free bonds available for funding educational expenses.

5. Buying Insurance Plans

Savings and protection are integrated into insurance plans, such as child education plans. These plans help guarantee that a child's education fund is not compromised in the unfortunate situation of an accident. Most such plans come with tax exemptions under Section 80C and pay tax-free maturity proceeds under Section 10(10D).

Here’s how parents can benefit:

• Opt for child education plans that combine savings and insurance.
• Enjoy tax benefits through Section 80C on premiums paid.
• Receive tax-free maturity benefits under Section 10(10D).

6. Investing in PPF

PPF stands for Public Provident Fund, another long-term investment tool with reasonable, sliding interest rates and tax-saving attributes. It is protected by Sections 80C and 10(11) of the Income Tax Act. PPF has a maturity period of fifteen years; hence, it would be specifically suitable to create a wealth base for a child's higher education.

Here’s how to use PPF effectively:

• Contribute to PPF to benefit from deductions under Section 80C.
• Enjoy tax-free interest earnings as per Section 10(11).
• Utilise the 15-year maturity period to plan for future education expenses.

7. Exchange Trading Funds (ETFs)

Exchange-traded funds are cheap and efficient methods of exposure to several stocks or bonds. They are flexible and can be bought and sold just like any other stock in the exchange. On average, expense ratios are considerably lower in ETFs, and their liquidity is relatively good; therefore, investments in ETFs are suitable for long-term objectives like a child’s education.

Here’s how ETFs can be useful:

• Invest in ETFs for a diversified portfolio with low expense ratios.
• Benefit from flexibility in buying and selling ETFs.
• Use ETFs to build a long-term investment strategy for a child’s education.

8. Buying Real Estate

Real estate investment remains one of the most steady and appreciating investment forms when financing a child’s education. Moreover, rent that businesses obtain from the property is relatively easy to forecast and can give stable revenues, while the property itself may appreciate.

Real estate also has incentives for tax deductions on home loan interests under Section 24(b) and on the reimbursement of the principal amount under section 80C. Here’s how to leverage real estate:

• Invest in property to generate rental income for education funds.
• Benefit from property appreciation over the long term.
• Claim tax deductions on home loan interests under Section 24(b) and principal repayments under Section 80C.

9. Take Advice From an Expert Financial Planner

Meeting with a financial planner would help derive various savings plans for a child’s education. Sometimes, professional advice can help choose the best combination of investment tools, choose the taxation system, or specify the means to save according to one’s conditions. Here’s how a financial planner can assist you:

• Get personalised recommendations for investment tools and savings plans.
• Understand the best tax-saving strategies for education funds.
• Develop a comprehensive financial plan suited to individual circumstances.

Building a corpus for your child's education requires careful planning and disciplined saving. Start by estimating the future education costs, considering factors like inflation and the type of education. Begin saving as early as possible to benefit from compounding. Here are some expert tips:

• Invest across instruments such as equity mutual funds, Public Provident Funds (PPF), and child-specific education plans to balance risk and return.
• Regularly invest through Systematic Investment Plans (SIPs) to build a substantial fund over time.
• Utilise tax-saving options under Section 80C to maximize your savings.
• Consider insurance plans that combine savings and protection to ensure your child’s education fund is secure even in your absence.
• Review your investment portfolio periodically and adjust it according to changing goals and market conditions. You can also consult a financial planner for more guidance.

1. Estimate the Overall Cost

The cost of education can vary widely depending on the type of institution, program, and location. Moreover, parents should consider additional costs, including food, books, clothing, and transportation. Ergo, it is essential to research and estimate the costs of the following:

• Tuition fees, including schooling and additional coaching.
• Room costs, i.e., hostels, apartments, or paying guest commodities.
• The board, university, or affiliation of the institution.
• The child's program or course of interest.

2. Set up a Savings Goal

Parents should re-evaluate and adjust their savings goals periodically to combat rising education costs. Once they have an estimate of the educational costs, they can set savings goals to plan for their children's education:

• Determine how much you need to save each month to reach your goal by doing the following:
  • Use online calculators
  • Consult a financial advisor
• Ensure to save enough to cover the increasing costs of education by doing the following:
  • Consider the time frame
  • Factor in inflation

3. Opt for Scholarships and Financial Aid

Parents should apply for any scholarships or financial aid for which their children are eligible. Here are a few ways to use financial instruments that help save money for education:

• Research private and government scholarship offers.
• Look into student loans and other financial aid.

4. Be Flexible and Open to Change

Parents must be open and flexible when planning their child's education. Here are some tips to get started:

• The cost of education may rise with time. Factor it with proper inflation calculation while planning. 
• Your child's career aspirations can change. Keep your financial goal open to the higher end of the spectrum, too. 
• Adjust your savings goal and keep all options open.
• Consider more affordable institutions and programs.

There are several reasons as to why you should save for your child's education:

• Financial Preparedness: Saving in advance helps you avoid the stress of scrambling for funds at the last minute, reducing the need to rely on costly credit options.
• Rising Education Costs: With tuition fees and associated expenses continuously increasing, saving early ensures you can manage these rising costs more effectively.
• Access to Better Opportunities: Sufficient money can help children obtain the needed educational services in higher-quality educational facilities and programs.
• Less Financial Burden on Children: By saving for their education, you decrease your children's chances of getting a student loan.
• Peace of Mind: Such short-term goals bring assurance and comfort, knowing that part of the financial plan encompasses the child’s education.
• Long-Term Investment: Education is one of the long-term assets one can make in one's life, and it will be of great benefit to one's child.

Saving for a child's education requires a fine combination of planning, discipline, and patience. By following this guide on how to save money for a child's education, you can create a plan that works best for you and your family. With the right approach and planning, parents can ensure their children get the education they deserve without breaking the bank.