Planning your future finances requires making projections about how the expenditure will increase as time advances. Usually, these assumptions get linked to the average general inflation rate in an economy and calculations are made around what lifestyle expenses will look like five or ten years down the line.
There are two sets of expenses here that don’t follow the average inflation rate but, these are too important not to consider in your calculations. Education expenses and medical expenses have historically overshot the average rate of price increase in an economy. To plan for future expenditure on these two aspects, you must be prepared for costs to leapfrog.
Who would have thought that a simple playschool and nursery learning can cost upwards of Rs 2-3 lakhs a year? These are the actual costs you will have when your children are merely 3-4 years into the world.
The cost of primary education after this phase can be anywhere between Rs 2 – Rs 12 Lakhs a year depending on the type of school you choose to get your child admitted in.
Just a decade ago these costs were half and much lower if you go back two decades.
The real jump comes in higher education. Private colleges in India can charge up to Rs 8-10 lakhs for an undergraduate program and Rs 15-25 lakhs for post-graduation. If you want to send your child overseas then just consider a cost 4-5 times this amount.
Schools usually increase fees by 10%-15% in a year. This may not apply to existing students but adds up by the time your child is ready to go to college.
Always over-allocate for education costs which are more than five years away.
Going by a standard rate of 6% annual inflation, your doctor consultation fees should move from Rs 500 a visit to Rs 670 per visit over five years. But we know that fees usually increase in blocks of Rs 500 and more like every two years than every five years.
Add to that costs of preventive testing and hospitalization costs, you will realise that the standard rate of inflation simply doesn’t apply to something as non-discretionary as a medical expenditure.
This escalation is true no matter which social strata you belong to and what your choice of the medical establishment is.
Moreover, as lifestyle-linked illnesses and diseases get more widespread there is a continuous need for medication and preventive testing which are not reimbursable through medical insurance. You have to account for increased medical expenses as a part of regular expenditure over time.
Whatever can be covered through insurance plans should be. For everything else ensure that you have some surpluses built into your emergency fund for medical expenses too.
You can start budgeting for this early and if the amounts remain unspent, they can keep getting added on for the future.
Planning for your child's education and your family's medical expenses needs a little more attention from your side than just your regular lifestyle expenses. You don’t want to be in a situation where you haven’t planned it and a major education decision or an unplanned hospitalization results in you taking on an expensive personal loan. Not planning this in advance increases the chances of unbalanced monetary outcomes later in life.