Funding Child’s Education Expenses

In the past, I wrote about how to fund children’s education expenses, but some of my readers felt that there should be a calculator to figure out education expenses. So naturally, I am obliged to fill the gap with this calculator. I would strongly urge you to read the previous post before using this calculator to understand the basics first. Lets get some shortcomings of the calculator out of the way before using it.

First, note that this calculator does not assume you will retire early. It will just tell you a number which is how much your corpus should be, to fund your children’s education from today until however long you want to support them.

Second, the corpus calculated is for one child. If you have more than one child, repeat the process for each child and add up the corpuses to know your total corpus to support all your children.

Third, the calculator is only for calculating child’s education. You have to go to basics (annuity, future value etc) to calculate other child expenses such as bearing marriage expenses etc.

Finally, the calculator is only as good as your estimation of expenses and inflation numbers. The default numbers used are just placeholders and do not reflect reality. Use your best judgement.


How to use the calculator

For “Expected investment returns”, enter a number that you think is a reasonable return for your investments. Don’t go overboard and use a big number. Anything more than 15% is extremely risky. Likewise the lower bound should be at least FD returns. So don’t use anything less than 7%. Be on the safe side and assume a conservative number like 10%.


For each “Number of years in X” field, enter the number of years your kid will be at that level. For example, if your kid is 7 years old now and if they are going to be in school until they are going to be 16 then the “Numbers of years in school” field should be filled with 9 (16 years – 7 years). Likewise if your kid is expected to do 4 year bachelor’s degree then “Number of years in undergraduate program” will be 4.


For “Expenses per year” field, enter the expenses you expect to incur for the program per year in today’s value. So, even if your kid is expected to join undergraduate program some 10 years from now, you know how much it would cost today to send a kid to undergradute school. Enter that number. For example, lets say it costs Rs. 2,00,000 to attend undergrad IIT today. Then enter Rs. 2,00,000 in the field. The future cost will be automatically calculated based on the rest of the information. If you don’t intend to support the kid at a particular stage, you can enter 0 for the expenses. For example, if you don’t plan to support their graduate program, then enter 0 for “Expenses per year”.


In the “Inflation” field, enter the expected inflation of the education. May be school expenses increase 10% year over year and college expenses increase 12%. Enter your best guess for each level of education.


Remember to press “Calculate” after changing any of the values. The “You will need this big of a corpus today” field will tell you how much you need to fund your kids expenses. Assuming you have that corpus, just use the 70:30 allocation to invest the amount. Then, each year, redeem what you need for the year’s school expenses and rebalance to maintain 70:30 allocation. You can fund your kid’s education expenses quite comfortably.


Education Expenses Calculator

Expected investment returns
Number of years in school
Expenses per year
Inflation
Number of years in college
Expenses per year
Inflation
Number of years in undergraduate program
Expenses per year
Inflation
Number of years in graduate program
Expenses per year
Inflation
You will need this big of a corpus today

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