Education for our children is probably the goal closest to a parent’s heart and that was amply demonstrated by the reader interest and response to such posts in the blog. I thought it will be a good idea to go ahead and explain how I tackled this in my life. As you are aware, both my children are in college – my daughter is in the final year of her BE course in BITS Hyderabad and my son is in his second year of a dual degree course ( 5 years Msc Maths + BE Computer Science ) in BITS Goa. As such I probably have the most recent experience of having gone through the need of such costs and meeting the same.
Though the education of my children have always been my dearest cause and I have spent a lot of time in teaching them since they started attending school, I had not specifically invested for their college education as a goal. This of course, goes with my own philosophy of having 3 portfolios and investing as much as possible in them, without restricting your preferred lifestyle. For example we took vacations every year and it cost a fair bit, but I had never considered an option of cutting it down in order to do more SIP for a goal that was 10 years away. My belief is that if you are doing well in your chosen profession, your earning and investment capability will both increase over time and will enable you to spend and invest in an increasing manner. I knew I had enough in my 3 portfolios to take care of any educational expenses that may be needed in college.
In 2012 when my daughter got into BITS Hyderabad, I had just left my job as a CEO and started my Consultancy practice. Now this was a something completely new for me and, as I was most definitely not financially independent yet, I was in need of active income from it to take care of my expenses. The Consultancy practice went reasonably well for a year and then I took up another CEO role for a short while, with the specific objective of working out a plan on being financially independent and therefore not needing active income by end 2014.
Anyway let us come back to 2012 when my daughter started her college. My active income at that point was fortunately sufficient to pay her admission and first semester fees out of what I earned between April through June. Similarly when her second semester fees were due in December, I had accumulated some portion of my active income for this purpose. At this point of time my son was studying in 11th class and his schooling and coaching was a significant amount too. To give people some idea of the costs, the overall cost in FY 2012 – 2013 for children’s education came to about 4 lacs. It was a good thing that my active income paid for all of this and we were able to maintain the same lifestyle as we had when I was a CEO in a corporate job. However, my ability to invest took a hit and this kind of made me revisit my plans. The whole idea was to become financially independent and that required more investment which I was unable to do. Once I thought through this, taking up a job for a short while seemed like an attractive option. It would enable me to invest significant amounts every month, in order to set up a passive income stream when I went back to doing Consulting.
When I took up the CEO role in April 2013, the active income was enough to pay for the increased college fees for my daughter, schooling for my son and significant investments mainly in debt instruments with the intention of setting up a passive income stream in the next 18 months. In the FY 2013 – 2014 the cost of children’s education was about 5 lacs, partly from increased fees and partly from their personal expenses going up due to increased needs !!
In FY 2014-2015, I was faced with the situation that both children were in college and would have 2 overlapping years. I also wanted to quit my job by end 2014 in order to take up Consulting once more. This time, however, I would be actually financially independent and therefore could take up assignments that I genuinely wanted to do. While my passive income would be enough to run my regular expenses and even continue my SIP, I needed to plan out well for the college fees of both children. I did not want to use my active income for that – it was for investments, indulgences and causes I support.
This is how I went about looking at the 2 year time frame from June 2014:-
- I estimated the 2014 – 2015 expenses to be about 6 lacs. The cash flow requirement was mainly for July 2014 and January 2015. This was something I planned with my salary which would be there till December 2014.
- I estimated the FY 2015 – 2016 expenses to be about 7 lacs. This would again mainly be needed in July 2015 and December 2015.
- In June 2014 I got a considerable amount of variable pay, based on the the performance of previous year. I used part of this money to set up 2 FD’s in my daughter’s account which would mature at a time of their semester fees payment.
- This would essentially take care of my daughter’s graduation and for my son, who will still have 3 years to go, further planning is needed.
My expectation is that I should be able to put aside some money from my active income and create FD or Debt funds which will mature or be redeemed at the time of the semester fee payments. Even in the worst scenario where I am not able to do this, it will not matter much as I can always take money from PPF or redeem some debt MF to meet these expenses. Now that I am doing the Kuwait assignment, it is more than likely that the active income will more than suffice. Of course, if my daughter gets into an IIM, that is another huge chunk of expenditure one will need to plan for.
As you would have seen from this, despite the dynamic situation of my starting Consultancy in the year my daughter started college and 2 years of overlapping of college time for my children, I have managed to deal with the expenses purely from my active income with a little forward planning. You definitely need to invest for the future and children’s college education is an important part of this investment plan. However, when your children are in college you will be having active income, in all likelihood, and it will probably be significant. So do not get over anxious by seeing that you may need 1 crore for your son’s college after 15 years etc and let it rob you of your current life events.
You will probably need 1 crore after 15 years. After all, I never thought 15 years back that I would be paying 7 lacs in a year for the college education of my children. The important thing is that I have managed reasonably well and so will you. Keep living the life you need to live and invest as much as you can in the 3 portfolios. Things will sort themselves out.