Rashna has just started working after completing her engineering degree. She plans to work for a few years before going back to school for a management degree. She has been told that her chances of getting into a good management school will improve with work experience, which will also help her save for her higher education. She likes to spend, but is also keen to save for her future.

That is because though she comes from an upper middle class family, her parents are not in a position to fully fund her education. They have told her that allocating a large sum for her will compromise their other goals, but they will help her as much as they can. Rashna is torn between saving for the future and her new-found financial independence. She wonders if there’s a middle path that she can follow.

Rashna’s key goal is to fund her higher education and she must begin by ascertaining the cost of the degree a few years down the line. Will her savings be adequate to cover the costs? In order to figure that, she must assume that her savings will fetch conservative returns (equivalent to bank deposit rates). She can seek a bank loan to fund the balance amount. She should choose a management school with a good placement record, so that she can repay the loan without difficulty. Rashna’s focus should be on increasing her own savings, so that her loan amount is lower to that extent and repayment is not a problem.

In order to maximise her savings, she must consider staying with her parents to avoid routine costs like rent, food, transport etc. Her parents would be much more comfortable with this arrangement than with shelling out a large amount for her higher education. They would also prefer to stand as guarantors for her education loan, instead of funding her directly.

Rashna should consider investing through SIPs for her higher education, since what is not saved automatically ends up getting spent. Rashna would also do well to ensure that she builds a good relationship with her bank. She should focus on keeping a clean record and avoid a credit card or any personal loans at this time.

(The 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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