Affordability - Education Fund

Affordability is another area we should look deep into when developing an education plan. It refers to whether we can set aside a sum every month just for the purpose of creating an education fund for our child.

Affordability is vital in an education planning because it will eventually determine whether the planning is going to be sustainable in the long run. Hence, consider it from every aspect of situation, so the goal we set initially will be attainable in the future.

Steps to Determine Child Education Fund Affordability

• Start with the education fund goal. The goal can be determined by deciding on these options: what course is to take, study for how many years, study locally or overseas, which university, how much is the living expenses involved.

• After getting the total fund amount needed, we need to take inflation into our account. Inflation rate will greatly affect the future value of the current amount. Finally, we will come to an amount which we need to prepare, to pursue a particular course for certain years in a particular university.

• To begin saving into this amount, we need to decide how many more years are available, what is the rate of return assumption, then the monthly savings amount needed to set aside will be derived.

• We need to work out a family budget before we can determine whether we can afford. List down all the current income and expenditures of the family. See if the net cash flow of the family is healthy enough to support the monthly set-aside amount we derived earlier.

Finally, we have the answer of whether we can afford the child education fund. If the answer is yes, then congratulations! How about if we cannot afford it? Here are some tips:

• Half a loaf is better than no bread. Start with the amount we are comfortable with. Say, you can start with about 70% of the total amount needed. Just kick it off. Do not wait. The reason behind is, if we do not start now, as the time available becomes shorter, we may not be able to accomplish it any more.

• Review the plan from time to time. Any increment in the family income will enable us to further enhance the plan.

Things We Need to Take Note of

There are variable factors which may affect our affordability to develop a child education plan. Unemployment, premature death, disablement and dread diseases - they can seriously reduce the family income and our affordability to sustain the plan. Hence, it is important to find ways to transfer the risks.

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