Higher Studies Planning: How to save for your higher studies

Manya has just got her first job after completing undergraduate studies. She plans to work for a few years before going back to school to get a management degree. She has been told that her chances of getting into a good management school will improve with work experience. Besides, she will also be able to save up for her higher education. Like all young earners, she likes to spend on holidays and enjoying life, but is also keen to save for her future. Her parents live a comfortable life but are not wealthy enough to fully fund her education. Allocating a large sum for her education will compromise their other goals. Manya likes her financial independence and is tempted to leave home and fend for herself in another city since she has a lucrative job offer. She, however, does not have a large enough salary to live on her own while also saving for her education. What should she do?

Manya’s key goal is to fund her higher education. She has to first ascertain whether her savings would be adequate to cover her education costs. She should build in a conservative rate of return (use a bank deposit rate) on her investments in which she will deploy her savings. She can seek a bank loan for the balance amount. She should choose her management school with a good placement record so that she can repay the loan without any difficulty. Her focus should be on increasing savings so that her loan amount is lower to that extent and repayment does not become a problem.

Since her parents are willing to support her routine needs, Manya should use this to increase her monthly savings. If rent, food, health, transport and such routine expenses are taken care of by her parents while she works, she will have a higher saving surplus. She should not move out on an emotional impulse, as it would increase her expenses and significantly reduce her ability to save. Her parents may be willing to see this arrangement much better compared to funding a large sum for her higher education. They may also be willing to guarantee her education loan, instead of funding her directly.

Since Manya knows that she will need an education loan in the future, she should work on building a good relationship with her bank. She should ensure that she builds her deposits and investments through one bank account and should keep a clean record. She should use the credit card judiciously at this time, and not take personal loans. If she takes a loan, for example, to buy a car, she should repay it on time and maintain a good credit record. Since what is not saved ends up being spent, Manya should begin a systematic investment plan that auto-debits her account towards investment, even before she has money to spend.

Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.

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