Were you saving up for your retirement and realise now that your child’s higher education may end up costing a lot more than you thought? As a result, you find yourself withdrawing from your retirement kitty and spending on your child’s higher education. 

In fact, it’s not unheard of for parents to sell their homes and move to rented accommodation to fulfil their child’s education goal. 

Wouldn’t it be better, instead, to plan for this goal alongside future requirements like retirement and owning a home? You can plan for more than one goal at the same time. 

Why is there a gap?

In order to understand why such a situation arises, one has to understand the psychology behind it. Retirement is a given for most people from the time they start working and because it affects the one who is earning, it is easier to visualise and prepare for. It is also easy to internalise your need to own a house.

It is not as simple to visualise what your child may want to study 18 years after birth or the steady rise in education costs over a period of 2 decades. However, just like retirement and ownership of property, this too is a reality. Education costs can go up at a rate much higher than general inflation in an economy.

Moreover, as a parent you are unlikely to want to send your child to the cheapest education institute, on the contrary many parents seek out the best education for their children. 

Add to that the lure of sending your child overseas and you have a real financial conundrum on your hands. In a bid to achieve this, your emotional quotient may also lead you to fund your child’s education at the cost of your current comfort let alone the future lifestyle.

The good news is that if you start investing towards this goal of your child’s education alongside your retirement investment, you can keep the outcomes separate. This means there is a lower likelihood of you cheating on your retirement lifestyle to fund your child’s education needs. 

Using growth assets like equity to create wealth for this goal, requires you to give it time. The longer you remain invested, the better chances you have of achieving your expected return and compounding your wealth. 

Earlier the better

To avoid the pain in future, you have to start investing early. There is a higher chance of your investments being sufficient for your child’s education if you start planning and investing say 10-12 years before the need arises rather than if you wake up when your child is already in senior school.

Using growth assets like equity to create wealth for this goal, requires you to give it time. The longer you remain invested, the better chances you have of achieving your expected return and compounding your wealth. 

Simultaneously, allocate some amount towards investing for your retirement. This is a goal which is perhaps more crucial than your child’s education goal and you must cater to it accordingly. The good news is that you will perhaps have a longer time frame to fulfil this goal. Once again, the earlier you start the easier it will get towards the end. 

Despite investing, you may find that you don’t have enough for the education expense as you had visualised earlier. It could be that the course your child wants to pursue is out of your budget or that you underestimated the rise in education costs.

Whatever the reason, you should still not disturb your retirement kitty. Since, you catered to the education goal separately and defined a goal, you would have a reasonable kitty and that will enable you to make reasonable choices about where to study. If not the best or most expensive choice you will still be closer to fulfilling the education choice of your child and it won’t come at the expense of your retirement.