Overwhelmed with Debt: How Do I Come Clean to My Parents?

Ans: You are thinking early. That itself is a smart step. Many parents postpone planning and later struggle with loans. You are not in that situation. So appreciate your approach.

You asked about ideal corpus for higher education. Education cost is rising fast. So planning early avoids financial pressure later.

You have two kids. Your daughter is 12. Your son is 8. You have around six years for your daughter and around ten years for your son. With this time frame, you need a proper structured plan.

» Understanding Future Education Cost

Education inflation in India is high. It is increasing year after year. Even professional courses are becoming costly. College fees, hostel fees, books, digital tools and transportation also add cost.

You need to consider this inflation. Higher education cost will not remain at today’s value. It will grow.

So if today a standard undergraduate program costs around a few lakhs, in six to ten years the cost may go much higher. That is why estimating corpus should consider this future cost.

You don’t need exact numbers today. You need a target range to plan. A comfortable range gives clarity.

» Typical Cost Structure for Higher Education

Higher education cost depends on:

– Private or government institution
– Course type
– City or abroad option
– Duration

For engineering, medical, management or technology courses, cost goes higher. For government colleges the cost is lower but seats are limited. Private colleges are more accessible but expensive.

So planning based only on government college assumption may create funding gaps. Planning based on private college range gives safer margin.

» Suggested Corpus for Both Children

For your daughter, considering next six years gap and inflation, a target range should be higher. For your son, you have more time. So his corpus can grow better because compounding works more with time.

For a comfortable education corpus that covers most course possibilities, many families plan for a higher number. It gives flexibility to choose better college without stress.

So you can aim for a larger goal for both children like this:

– Daughter: Target a strong education fund for next six years
– Son: Target a similar or slightly higher fund for the next ten years because future costs may be higher

You may not need the whole amount if your child chooses a less expensive route. But having extra cushion gives peace.

» Your Savings Ability

You mentioned you can save Rs.50000 monthly. That is a strong saving capacity. But this saving should not go entirely to a single goal. You will also need future retirement planning, emergency fund and other life goals.

Still, a reasonable portion of this amount can be allocated towards education planning. Some families divide savings based on urgency and time horizon. Since daughter’s goal is near, she may need a more stable allocation.

Your son’s goal is long term. So his part can stay in growth asset for longer.

» Choosing the Right Investment Style

A long term goal like your son’s education needs equity exposure. Equity gives better potential for long term growth. It beats inflation better than fixed deposits.

But for your daughter, pure equity can create risk because goal is nearer. Market fluctuations may affect final corpus. So she needs a balanced asset mix.

So investment approach must be different for both.

» Asset Allocation Strategy

For your daughter with six year horizon:

– Higher allocation to a balanced type category
– Some allocation to equity through diversified categories
– Step down equity allocation in final three years

This structure protects capital in later years.

For your son with ten year horizon:

– Higher equity allocation at start
– Continue systematic investing
– Reduce risk allocation gradually closer to goal period

This helps growth and protection.

» Avoiding Wrong Investment Products

Parents often buy traditional insurance plans or children policies for education. These policies give low returns. They lock money and reduce wealth creation potential.

So avoid purely insurance based products for education goals. Insurance is separate. Investment is separate. This separation creates clarity and better growth.

If you already hold any ULIP or investment insurance product, it may not be efficient. Only if you have such policies then you may review and consider if surrender is needed and reinvest in mutual funds. If you don’t have such policies, no need to worry.

» Role of Actively Managed Mutual Funds

For long term goals, actively managed mutual funds offer better flexibility and expert management. They are designed to outperform inflation. A regular plan through a mutual fund distributor with CFP support helps with guidance. They also track your goal and give advice in volatile phases.

Direct funds look cheaper on expense ratio. But they lack advisory support. Long term investors often make emotional mistakes in direct investing. They stop SIPs or switch wrong schemes. So advisory backed investing avoids costly behaviour mistakes.

Index funds look simple and low cost. But they only follow the market. They don’t protect during corrections. There is no strategy or research. Actively managed funds adjust holdings based on market research and valuation. For life goals like education, smoother growth and strategy are needed.

So regular plan with advisory support helps you avoid unnecessary emotional decisions.

» Importance of Systematic Investing

A fixed monthly SIP gives discipline. It also benefits from market volatility. When markets fall, SIP buys more units. In rise phase, the value grows.

A structured SIP helps both goals. For daughter, SIP should shift towards low volatility funds slowly. For son, SIP can run longer in growth-oriented funds before reducing risk.

Your contribution amount may change based on future business income. But start now with whatever comfortable.

» Protecting the Goal With Insurance

Since you both are running business, income stability may fluctuate. So ensuring life security is important. Term insurance is the right option. It is low cost and high coverage.

This ensures child’s education is protected even if income stops.

Medical insurance also matters. A medical emergency should not break education savings.

» Reviewing the Plan Periodically

A fixed plan is good. But markets and life conditions change. So review once every twelve months.

Points to review:

– Are SIPs running on time?
– Is allocation suitable for goal year?
– Any need to shift from equity to safer category?
– Any tax planning advantage needed?

But avoid checking portfolio every week. Frequent checking creates stress.

» Education Goal Withdrawal Plan

As the daughter’s goal comes close:

– Stop SIP in high risk category
– Start shifting profit to debt type fund over systematic transfers
– Keep final year money in safe option like liquid category

Same formula should be applied for your son when his goal approaches.

This protects against last minute market crash.

» Emotional Side of Planning

Education is an emotional goal. Parents feel pressure to provide the best. But planning removes fear.

Saving consistently gives confidence. Having a plan helps avoid panic decisions. It also brings clarity of future expense.

This planning sets financial discipline for your children as well.

» Taxation Factors

When redeeming funds for education, tax rules will apply. For equity fund withdrawals, long term capital gains above exemption are taxed at 12.5% as per current rules. For short term within one year, tax is higher.

For debt investments, gains are taxed as per your tax slab.

So plan the withdrawal timing to reduce tax.

Tax planning near goal year is very important.

» What You Can Do Next

– Start separate investments for each child
– Use SIP for disciplined investing
– Choose growth-oriented asset for son
– Choose balanced and phased investment approach for daughter
– Review allocation yearly
– Protect the goal with insurance cover

Following these steps helps achieve the target corpus smoothly.

» Finally

You are already thinking in the right direction. You have time for both goals. You also have a good saving frequency. So you can build a strong education fund without stress.

Your children’s future will be secure if you continue with a structured and disciplined plan.

Stay consistent with your savings. Make investment choices carefully. Review and adjust calmly over time.

This journey will help you reach your ideal corpus for both children.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment