BQPortfolio: How New Dad Pachaiyappan Should Plan For His Son’s Higher Studies
Pachaiyappan pegged the cost of education to rise at 4 percent every year. He’s wrong!
D Pachaiyappan’s son is a toddler. The father hopes that 15 years from now the child will enroll at a top university and earn a degree in engineering.
The Kanchipuram resident knows that his three-year-old may eventually want to follow another path. But his primary concern today is to ensure that he saves enough to help his son get the best possible education.
Now, Pachaiyappan has read that the Reserve Bank of India aims to keep inflation—the rate at which prices rise—at 4 percent. So, he estimates that he will need Rs 50 lakh in 15 years for his son’s higher education.
While he’s right about the inflation target, the cost of education is rising much faster than that.
Certified financial planner Arvind Rao thinks it’s prudent to assume that the rate of inflation for institutions such as IIMs is closer to 10 percent. And while this number may end up being lower over 15 years, he says overestimating costs and underestimating returns are the best policy when it comes to finances.
On this episode of BQPortfolio, Rao charts out a monthly investment target for Pachaiyappan’s primary goal as well as tells him how to save for his retirement.
Watch the full episode here: