The availability of education loans has somewhat reduced the burden for parents. However, these are available only for pursuing higher education. You will still need to save for college, especially if your child wants to pursue a degree in engineering or medicine.
It is best that you start saving early to ensure you have sufficient time to accumulate the required corpus. However, starting a college fund is an important financial goal. Nonetheless, there are other crucial goals like retirement fund and these must not be ignored.
Before you start saving for your child’s education, remember the following three points.
- Repay high-cost debt like credit card outstanding
- Ensure you have at least three to six months of liquidity in case of an emergency
- Save at least 15% of your income towards your retirement
Here are four ways that you may follow to save for your child’s education.
- Child savings account
You may have had a piggy bank to save when you were young. When the piggy bank was full, you spent the money on goodies like chocolates and toys. Today your child has another option to save money, a child saving account.
Such an account will help your child to inculcate the habit of regular savings. When they see their money grow through the attractive interest rates offered by the banks, they will learn important financial lessons. As your child grows older, you may teach him/her more about a savings account, deposits, and investments. Having such an account is an excellent way for future savings.
These are tax-free investment products for the future. You may invest for the long-term and earn guaranteed returns. Parents, grandparents, and guardians are allowed to procure bonds for the children. However, such bonds are issued only if your child is less than 16 years.
Fixed deposits (FDs) allow you to invest a lump sum to earn decent returns in the long-term. Recurring deposits (RDs) are other alternatives that help to gradually build a sizeable corpus. The guaranteed returns and financial stability make such deposits a popular investment option. Furthermore, these may provide certain tax benefits under the Income Tax Act.
- Child investment plans
These have recently gained popularity because such products allow you to take care of your child’s financial future. Another reason for their popularity is the customization of tenure and monthly investments option. Such investment plans offer life coverage as well as financial support for your child’s education.
Although investing and saving for your child’s education is important, there are some ways to reduce your burden. Encourage your children to take up work during the summers and teach them to save instead of spending money. Moreover, scholarships also help reduce the cost of education.
Start saving today to ensure your child does not miss out on his or her education in the future.