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August 25, 2022

Budgeting tips for parents.

Budget tips for parents

Millions of students from all over the world enroll in colleges abroad to broaden their horizons, develop their cross-cultural skills, and sharpen their language abilities.

The majority of parents are devoted to paying for their child’s overseas education and are ready to make personal sacrifices; this is true not only for primary and secondary school but also for postgraduate study.

Even though this attitude is commendable, many parents are unaware of the costs associated with sending their children to an international university in the future.

Countless students and their parents struggle to make their study abroad dream a reality due to poor or late planning and a relative lack of knowledge.

Here are some financial planning strategies that parents may use to make their children’s study abroad experience a little less stressful and a little more productive.

With the help of these suggestions, you can assist your child in realizing their dreams while simultaneously preserving your long-term financial security.

1. Include cost forecasting in your plan

Tuition is not the only cost of studying abroad. Your initial budget may increase significantly as a result of additional expenses such as student health insurance, academic materials, cost of living (housing, food, transportation), and entertainment. When creating your strategy, be sure to take these costs into account.

Planning and budgeting are likely to go more smoothly if you anticipate increased prices and make additional savings as opposed to making smaller savings now in the hopes that they would be sufficient later.

Adopting a pessimistic outlook will increase your prospects of building a future capital that is more than the real costs at that point.

And the less you have to borrow at interest (like an education loan) when the time comes, the more you may give from your own savings or investments. This would not only reduce your overall debt load but also speed up your repayment process.

2. Consider long-term financial planning

Planning is extremely important. As soon as you can, begin making plans for your child’s international education. You may need to make certain personal sacrifices as a parent right now, so start looking at your spending patterns and reducing non-essential spending.

Set aside money for your child’s education, and do it regularly. Additionally, look at other options for saving and investing.

Also, explore the places you might want to send your child as part of your financial planning in advance. Highly developed nations like the USA, Canada, the UK, Australia, and others are the most sought-after locations for higher education.

The higher cost of living must be taken into account, and you must therefore include these aspects in your plan from the very beginning.

Budgeting tips for parents

3. Consider inflation & exchange rates

The US dollar has been among the strongest currencies in the world for many years, with practically all other currencies slowly losing value against it.

You should anticipate that this will continue in the future for your currency as well. Therefore, regardless of when you intend to send your child abroad to study, you must account for inflation in your nation and potential depreciation of your currency in your study abroad budget.

EduFund’s College Cost Calculator can help you figure out the average total amount you will require when you send your child to study abroad, factoring in inflation and exchange rates.

Longer time frames provide you greater freedom to invest in high-risk assets like equity, which can assist you in the long term to fend off the impacts of inflation and currency rate fluctuations.

4. Find the best investment strategies

Even though your child’s international trip is years away, simply setting up an education fund with your current regular salary might not be sufficient to cover your child’s future needs.

The living costs will probably increase from where it is today in the future. You need to start looking for extra sources of money right away that are separate from your (and your partner’s) salary income if you want to lessen the impact of these potentially increased costs.

As a result, you should look into medium- and long-term investment opportunities that you may begin making as soon as possible. Recognize your investment capacity and risk tolerance, and make investments accordingly.

Our financial advisors can assist you in your search for mutual fund-based Systematic Investment Plans (SIP), education investment, or savings plans specifically designed for education.

5. Consult an expert investment advisor

Most people find the process of preparing for an international study abroad to be intimidating. You can still feel completely unprepared with your action plan and strategy even if you start early, set a budget and a costing plan, and examine the many investment possibilities.

Talking to a professional may be a good option if you feel stuck. You can explore your possibilities and create a more thorough and practical strategy with the assistance of our investment advisors and study abroad experts.

You might even discover new choices that you hadn’t previously known about or hadn’t considered.

Conclusion

A study abroad plan for your child can include confusing aspects of financial considerations, but with systematic planning and a practical mindset, you and your child can both benefit in the long run from pursuing this desirable goal.

FAQs

What is the 50-30-20 rule?

The 50-30-20 rule is the best budgeting hack. It means you use 50% of your income for expenses, 30% of your income for luxuries, and 20% for savings and investing. This is a disciplined way of investing and saving for your family’s future as parents.

What are the 5 tips for budgeting for parents?
  1. Create a monthly budget
  2. Invest a certain amount every month for future goals like a child’s education or a home.
  3. Use calculators to set a goal. Use the SIP calculator to know how much to save, use the College Cost Calculator to know the future cost of education with inflation, etc
  4. Use new investment techniques like the 50-30-20 rule, the SIP method, or the lumpsum method!
  5. Create an emergency fund so your savings are not exhausted in any unfortunate event
How to manage investments in 1 lakh salary?

You can use the 50-30-20 rule to invest in your family’s future. You can invest 20% of your income towards investments and savings like Mutual funds via SIPs or Lumpsum.

Want to invest?

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The cap covers any money sent abroad for purchases, travel, education, or other international transactions during the year. The investor's brokerage account has to be filled before making any investments in US equities. Investors must complete Form A-2, which is available from RBI-authorized dealers. Any sum over the $250000 cap requires RBI approval. Additional read: US stocks for investing in child education 4. Taxation To make your efforts worthwhile, it is crucial to take into account the tax consequences of your international assets. Due to the Double Tax Avoidance Agreement (DTAA) between the US and India, the same income cannot be taxed twice on investments made in the US stock market. 5. Dividend tax The dividends from US stocks are taxed at a fixed rate of 30% for overseas investors. However, as a result of the tax agreement between the US and India, citizens of India pay a 25% tax rate (deducted before distribution). However, because of the double tax avoidance agreement between the US and India, the tax paid in the US may be claimed as a foreign tax credit in your domestic filing. 6. Capital gains tax Your assets in the US are not subject to capital gains tax. However, India requires you to pay tax on your overseas capital gains. This may be divided into two groups.: Long-term capital gain (LTCG)If you keep the equities for more than 24 months before realizing capital gains, you will be subject to indexation advantages and a 20% tax rate in addition to any relevant fees and other surcharges. Short-term capital gain (STCG)Standard income-tax regulations apply to any gains from assets held for less than 24 months, and they are added to your ordinary taxable income. You must also take into account the recently implemented Tax Credited at Source or TCS. Under the new regulations, a 5% TCS will be applied to all international transfers over INR 7 Lakhs in a fiscal year. It is not an additional expenditure to deduct this advance tax when submitting your taxes each year. Charges on US stock-broking account  Using an Indian stock brokerage account to invest in the US stock market is prohibited. You would need to create one with a US stock brokerage company instead. To provide this service, the majority of Indian stock brokers who allow you to invest in US equities typically collaborate with a US stockbroker. You would also be required to pay certain fees for a US stock broking account, just like you would for an Indian trading account. This is something you should also take into consideration when you buy US stocks because these fees can reduce your earnings. These fees include Annual Maintenance Costs, brokerage charges, bank charges, transaction charges, and more. Invest in the US stocks with EduFund  Download the EduFund app and create an account to start investing in US stocks. With zero charges and no hassle account opening process from the comfort of your home, you can start investing in FAANG stocks in your portfolio to geographically diversify your portfolio!! Thus, investing in US firms and equities may give investors access to the worldwide market, credibility, and an opportunity to increase their wealth. Consult an expert advisor to get the right plan TALK TO AN EXPERT
5 top investments for risk-averse investors

5 top investments for risk-averse investors

All investments are associated with risks. Yet, the risk is not uniform, and it's essential to be aware of the different levels of risks linked with all types of investment instruments. This is why the first thing to consider before investing is how much of a risk appetite has – how much risk one is willing to take. Want to know the best investment options for risk-averse investors but still generate good returns? Continue reading this article to know more! What is risk averse? Risk-averse refers to an investor who chooses to preserve the capital over and above its potential to generate returns that are higher than the average. Risk can refer to many factors – volatility, currency, market, credit rating, etc. Risk-averse can also refer to a conservative investor. Low risk symbolizes stability in investments. A low-risk investment generates guaranteed reasonable returns, if not outstanding, above benchmark returns. But chances are near zero that the principal investment amount will be lost. Whereas a high-risk investment option may gain or lose money over time. Risk-averse investors are unwilling to accept market volatility. They prefer their investments to be highly liquid - readily available to be withdrawn. Such investors usually include old investors or retired individuals who depend on their savings for their daily expenses. Start Investing in Mutual Funds Is FD a good option for risk-averse investors? One should constantly adjust their returns against the current inflation rate. The current Fixed Deposit interest rates are 5-7% p.a. on average. But the current inflation rates are around 6-8% p.a. Give these figures a thought. The price you pay for your everyday goods and services is rising at 6-8%, whereas your FD investments are growing at only 5-7%. FDs do not increase the value of your money over time. In fact, you actually lose money or its purchasing power over time. Do you think FDs are the safest investment option? Banks defaulting on payments is rare but definitely possible. The Deposit Insurance and Credit Guarantee Corporation (DICGC) guarantees Rs. 5 lakhs per person per bank if the bank defaults. Let's not forget the liquidity part of this instrument. Fixed deposits can have a lock-in ranging from 3-5 years. Banks penalize the investors for withdrawing money before the lock-in is over. This penalty is in the form of a reduction of interest rate by a certain percentage. Download App and Start Saving for Child Education What are the best investment options for risk-averse investors? The market is filled with many investment options for investors with varying risk appetites. Let's look at some of the best investment options for risk-averse investors: 1. Short-term bond fund The best alternative for investors who do not want exposure to FDs or volatile instruments. Short-term bond funds – bond funds with low maturity and a high potential to offer better returns. Debt Funds with longer maturity are subjected to interest rate risk. But short-term bonds have a lower interest rate risk as their maturity period is much lower. 2. Municipal and Corporate Bonds State and local governments and companies usually raise money by issuing bonds to the public. Bonds offer lower risk than stocks. When a company is winding up, the bondholders are given first preference in the payment and settlement order. 3. Other debt funds Other debt funds include banking and PSU Funds, ultra-short duration funds, Dynamic Bonds, etc. You could always invest a lump sum in these debt-based mutual funds and opt for a Systematic Withdrawal Plan (SWP). This would ensure that along with the returns being generated on your investments, you would also get a monthly income from these investments. This investment option is one of the best options for older people who want a monthly income. 4. Liquid funds Invest in top-rated liquid funds to avoid loss of capital with a higher degree of safety for your primary investment. Also, when the market moves up, your investment performs better and generates higher returns in line with the market. 5. Dividend growth stocks Stocks are not as safe as cash, savings, or other debt-based instruments. But they are safer than options and futures. Dividend-paying stocks are considered safer than high-growth ones as they minimize volatility, if not eliminate it. You don't depend on the value of the stock as you get a dividend as a regular income on your investment. Apart from debt-based investments, you could also apply a staggered investment approach in equity-based mutual funds for a long-time horizon. A periodically rebalanced portfolio helps you minimize your portfolio volatility and ensures efficient capture of up-market and down-market movements even with equity exposure.  Take the help of an Investment Advisor who will guide you through goal-based planning and help you choose the investments that are most suitable to your goals and objectives and your risk appetite. FAQsWhat type of investments do risk-averse investors prefer?  Risk-averse investors typically prefer conservative investments with lower volatility and more predictable returns. These may include government bonds, high-quality corporate bonds, certificates of deposit (CDs), and stable dividend-paying stocks. These options aim to preserve capital while providing modest growth, aligning with the risk tolerance of such investors.   What are 3 high-risk investments?  Three high-risk investments include investing in individual stocks of volatile and speculative companies, trading in cryptocurrencies known for their price volatility, and investing in startups or early-stage ventures that have higher failure rates. These investments offer the potential for significant returns but also carry a substantial risk of loss.   Which investment is the riskiest for investors?  Investing in highly speculative and unproven assets like cryptocurrencies, especially in lesser-known or new coins, can be among the riskiest options for investors. The volatile nature of these assets can lead to substantial financial losses due to sudden price fluctuations and lack of regulation.   Which investment has the highest return without risk?  No investment offers guaranteed high returns without any risk. Investments with potentially higher returns often come with varying degrees of risk. While some low-risk options like government bonds or savings accounts provide stability, they usually offer lower returns. Diversification and a clear understanding of risk are important for any investment strategy.  TALK TO AN EXPERT
5 types of mutual funds

5 types of mutual funds

Investing in mutual funds for your child’s education is always advisable. First of all, it is a less stressful option than investing in direct equity stocks because that requires you to have in-depth knowledge of market trends and fluctuations. Secondly, with mutual funds, there are a variety of schemes you can opt for depending on a range of factors. These factors could include the time period for which you can invest before liquidating, the amount of money you can invest, the amount you require to secure the education fund, the level of risk you can take, and so on.  When it comes to building an education fund, here are the top 5 types of mutual funds you can choose from. 1. Large-cap mutual funds The defining characteristic of large-cap equity funds is the fact that these funds invest in the top 100 Indian companies that have the highest market value. Large-cap mutual funds can bring in impressive returns if you remain invested for a long period. If you are a person who wants to avoid taking very high risks with your investments and has decided to invest early for your child’s education, this is the way to go. The average returns rate has historically beaten that of Fixed Deposits and similar investment alternatives. SIP Mutual Fund Investment Read More 2. Mid-cap mutual funds Mid-cap funds invest in Indian companies that come in the next best 250 in terms of market value. These funds are for you if you are ready to take on a higher level of risk. Justifiably, the return rates also tend to get higher. One way to satiate the risk appetite of mid-cap equity funds is to let them season for at least 7-10 years. If your child is in primary or middle school, investing in such a scheme will generate a wholesome amount of wealth by the time they are ready to pursue a college education.   How to track Mutual Funds? Read More 3. Equity-linked saving schemes  Among the various perks of investing in mutual funds is the tax deduction benefit. Equity Linked Saving Schemes are devoted to enabling investors to save taxes, as the name also indicates.  The only catch here is that it has a compulsory lock-in period of at least 3 years. The aim here is to keep you invested longer to counter the risk level. If you can spare that amount of time, then ELSS is definitely a go-to. An added benefit is the historically high level of returns.   Mutual Funds to invest in Child Education Read More 4. Low-risk options  There is this whole myth surrounding mutual funds that they only come with a high-risk factor. On the contrary, a debt fund is also a kind of mutual fund that comes with low risk, so much so that it remains undisturbed by market fluctuations.  Debt funds are still a better option than Fixed Deposits because they can generate a higher percentage of returns. So, if you are not in favor of taking high risks, debt funds are a go-to.  5. Hybrid mutual funds  If you are confused about your investment options or even hesitant about risking too much, the answer to your problems is a hybrid mutual fund. This kind of fund is a mixture of equity as well as debt.  Hybrid mutual funds bring in the best of both worlds. They tend to generate good returns at low risk. FAQs What are the different types of mutual funds? Large-cap mutual funds Mid-cap mutual funds Equity-linked saving schemes Low-risk options Hybrid mutual funds Which type of MF is best? The best type of mutual fund is the Hybrid mutual fund. Which MF gives the highest return? Equity-linked mutual funds are considered the mutual funds with the highest returns. Conclusion There will be miscellaneous financial goals you will be required to set if you are a family person. One among these might be to straighten up the roadmap to your child’s academic and career aspirations. The first step is calculating your expected expenses with the help of an education cost calculator. The calculator will help you draw your investment map to fulfill your child's aspirations. The earlier you invest, the more prepared you will be to make critical decisions as the moment arrives. DisclaimerMutual funds are subject to market risks. The previous performance of a fund is no guarantee of future success. Please reach out to an expert to know more about the schemes before investing.
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