Want Your Child to do a Foreign MBA? Here’s a Step by Step Plan to Save for that

Feb 15, 2019 | 4 months ago | Read Time: 4 minutes | By iKnowledge Team

child education

Saving for a foreign MBA is simple. The step by step plan is to budget, check spends, take out a monthly contribution, invest in a plan, and opt for term insurance as added security.

Atul has two daughters, one just entering secondary school and one a toddler. He had a foreign education when he was young and has cherished the experience his entire life. He dreams of sending his daughters abroad for education. His elder daughter is proficient in Maths and loves numbers. Atul dreams of sending her for an MBA.

A foreign MBA is an aspirational dream for many families. Education in a foreign country is much coveted because of the liberal and broad-minded curriculum in foreign Universities. An MBA is one of the best degrees that to be studied abroad, and as students, children are spoilt by the number of Universities to apply to.

Atul has dreams for his daughters, and it is very much possible to fulfill these dreams by saving for it from now. Funding an MBA at short notice is very expensive, but if a proper child education policy is picked and invested in, then this process becomes straightforward. 

Saving for a foreign MBA requires planning, and more importantly, it needs regularity. It can be made significantly simple if you follow an investment plan.

Here is a blog post that makes it very simple to understand how to save for your child’s education.

To make it simple for everyone looking to fund their child’s foreign MBA, here is a step by step plan:

1. Budgeting:

Budgeting is the most crucial step to saving for a foreign MBA. The entire basis of your child education plan depends on the corpus that must be earned through systematic investments. Setting the right corpus amount depends on a few factors:

  • Make a list of Universities where you want to send your child to
  • Look up the tuition rates on the University website
  • Factor in dorm and living charges, if given separately
  • Factor in an additional 15%-20% as living expenses
  • That is the current cost of an MBA from the decided University
  • Take 10% as the increase in tuition costs and other expenses from year to year.
  • Consider the number of years left for your child to enter University for MBA and use this formula to calculate the future cost of education:

Future Cost = Current Cost (1+0.1) ^Number of years

Let us suppose the chosen college for MBA is UCLA, one of the top Universities in the USA. The child has 12 years before he will be studying for an MBA. The total tuition and living costs for a two-year program come to around $1,50,000.[1] Consider an extra 15% as living expenses or contingency expenses. 

That gives us a current cost of 1,50,000+(1,50,000*0.15) = 1,72,500

Now, if we put that in the formula, the amount to be provided for the MBA in 12 years will be:

Future Cost

= 1,72,500 * (1+0.10) ^12

= 1,72,500 * (1.1) ^12

= 1,72,500 * 3.1384

= 5,41,380

Considering an exchange rate of $1 = Rs. 65, this amount comes to Rs. 3,51,89,700

This is the amount that should be provided for foreign education. Now that the budgeting has been done, the next step is to find the monthly investment required to generate this corpus.

There is a simple education planner calculator by Aegon Life, which helps to break down the different variables and calculate the amount to be saved.

2. Setting aside an investment amount:

After deciding the corpus that must be raised, this has to be broken down into a monthly investment figure. Some calculators give you the monthly amount to be invested to meet your final investment goal. But a lot of this step depends on the amount that you can set aside. Even if it is as low as Rs. 5,000 a month, it is better to invest it in a plan, rather than to wait for your financial ability to improve. By investing a small amount in a child education policy, it is possible to build a corpus by benefitting from the compounding effect.

3. Decide your risk appetite:

The child plan policy to be invested in depends on your risk appetite. Since the investment horizon for encashing the funds is large, investing in equities is generally beneficial. Historical evidence has proved that equities have grown at rates above inflation, usually around 12%, sometimes even more. If investing in equities is scary, or you do not have the right expertise, investing in a child education plan is the best way to ensure the child gets a lump sum amount on maturity.

4. Find the right plan:

There are several child education policies in the market. Depending on their performance, invest in a plan that will help you best reach your final investment goals. The right plan should also be a child insurance plan, which should give the child the lump sum amount on maturity. It is recommended to invest in a plan which waives off premium in case of death of the parent. This means, in case of the unfortunate event of death, the insurance company will bear the cost of the premium for the remaining years, and the lump sum amount will be paid to the child. 

5. Invest in insurance:

Investing in term insurance is the best child protection plan. In case of sudden and unfortunate death, the education plans of the child are left in a lurch because of no savings. In such a case, there should be term insurance which will provide the sum assured to the child. It is possible to combine the child education plan with a life cover so that in case of death, sum assured is paid, and on maturity, the lump sum amount from the education plan is also paid.

Like for example, Aegon Life’s ULIP plan that combines insurance and investment which earns market returns. Regardless of the outcome, the child is paid decided benefits which secures his/her future.

Saving for a foreign education is always a difficult task because it is more expensive than education in the country. However, if you start investing early, you can get benefits of compounding, and it will reduce pressure to raise funds when it is time to pay. 

[1] https://poetsandquants.com/2011/01/08/how-much-does-a-top-mba-degree-cost/

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