Education

Education for your child — are you prepared enough?

Maghana and Sandeep are successful doctors in the city. Both being in the medical profession, wish their sons Gautam, 17 years old and Parag, 13 years old to become Doctors. Dr Megana and Dr Sandeep worked hard all these years and established themselves financially well. The couple being conservative by nature neither borrowed for any reason nor wanted to borrow in the future.

Their current worry is about funding for the education of Gautam, as Gautam expected to enter to a Medical College the next year. The doctor duo is not sure about having sufficient funds with them for funding Gautam’s education. Moreover, Parag is also due for entering a medical college in the next 4 years.

As shown in the table below, the doctor duo has a handsome income. Their monthly expenses are reasonable. They have a surplus of around 1.5 Lac per month. Out of this 1 Lac are currently being invested in FDs per month and remaining 50,000 thousand are usually kept in a savings account.

As shown in the table below, the doctor duo has a handsome income. Their monthly expenses are reasonable. They have a surplus of around 1.5 Lac per month. Out of this 1 Lac are currently being invested in FDs per month and remaining 50,000 thousand are usually kept in a savings account.

The table shows an account of their Assets and Liabilities. You can see that the couple have no loans and has accumulated good assets over time. They have bought a Plot and a Land a few years back as an investment which together is worth Rs 69 Lakhs now. They have around 25 Lac invested in FDs.

When Meghana and Sandeep went on to find out current expense of medical education; unlike the situation of their times; they were surprised after exploring the exorbitant amount of current medical fees. When they worked out the amount expected for Gautam’s education is approximately Rs 60 Lac in 6 years. The couple has to prepare themselves with an equal amount for Parag’s education. Moreover, they are supposed to be prepared for the marriage of both the sons. The most important part is; to be prepared for the retirement of Sandeep and Meghana. The table below shows the account of their most important goals. They have one more goal of traveling the world but is not considered here as the same does not seem feasible in today’s scenario and can be dealt with at a later stage.

After taking stock of the situation, the financial position of the family now seems to be somewhat weak. Meghana and Sandeep does not have sufficient amount ready for the education of their children.

Here is what the family has missed out on-
1. Maintaining sufficient liquidity
2. Not considering the Asset Allocation while making an investment into the real estate
asset
3. Not evaluating the goals and the amount required for each goal.

The doctors have tried to sell Land and Plot to generate the funds for education. However, the real estate asset is not so easy to sell. We have experienced in the past, many of our clients have struggled to sell flat or a plot for the years together. Moreover, since it is an unorganized sector, the price expectation on both buyer and seller side is never realistic. Hence investing overly in the real estate asset is never recommended.

The amount required for Gautam for Medical education is worked out to be Rs 60 Lac. The same amount inflated till 2024 when Parag is expected to enter to a medical college is expected to be Rs 88 Lac. To start with; the couple will have to liquidate their investment in FD for initial years of Gautam’s education. We have then worked out on the cash flow of Sandeep and Meghana for next 10 years. While working on the cash flow we found that the
remaining education expense can be taken care by investing Rs 85000 per month for the next 10 years that is till the time Gautam and Parag completes their education. So, the education part is being take care of. I have mentioned the relevant fund category where the monthly amount is supposed to be invested.

The remaining goals of marriages of both the children and retirement of the doctor couple; they need approximately Rs 89000 per month to be invested. So, the total investment per month required to complete both the goals is Rs 85000 for education and Rs 89000 for other goals. These totals to approximately 1.75 Lac per month. However, their surplus is about 1.5 Lac. This also means that the couple has a deficit of Rs 25000 will not be able to
start saving for all the goals immediately.

So, the remaining part will have to be taken care from the incremental income and will have to be worked out at a future date.

Lessons to be learned from Dr Sandeep and Dr Meghana’s situation:

1. Have proper asset allocation in place
2. Never invest out of proportion in any asset class
3. Maintain sufficient liquidity
4. Plan for the life goals well in advance
5. Take the inflation into consideration while planning for future goals.

While working on cases like this what else need to be considered is the amount of protection in the form of Insurance the family needs. For the sake of simplicity, the same is not considered here.

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