If you have kids, no doubt you have pondered what their future education looks like.
Paying for your child’s education is one of life’s big financial decisions. In some cases, it can even dictate how many children some couples consider having. Whether you choose public or private education, there are education bills to be paid.
Having a strategy in place to pay for your child’s future education is important, and it can start from as early as you conceive. Better to start early than to be grappling with invoices every term.
There are private enterprises out there that have education payment schemes set up to pay for school fees. However, with a good strategy in place, you can do it on your own.
What does schooling cost?
On average, Australian children spend 13 years in school with private school education reaching as high as $350,000 over a 13 year period – that’s up to nearly $30,000 a year.
Private school tuition differs from school to school, along with the costs of uniforms, devices, camps and extracurricular activities, textbooks, stationery and more.
Even in the State system, fees pop up that you need to be ready for.
So what is the best way to save for your child’s education?
There are 2 main ways you can save for your child’s education – The Five Year Plan and the Pay-As-You-Go Plan. Both are feasible and doable strategies and the decision comes down to:
- your financial position;
- your risk appetite; and
- what suits your family best.
The Five Year Plan
On average, children start school at the age of 6. This gives most families a solid 5 years (or even 6 if you start once you fall pregnant) of saving for your child’s education.
Starting early gives you an excellent headstart on creating a tidy schooling nest egg. Every year, or term, when school fees come out, you can happily know you have the available funds to pay upfront and in advance.
Trust us, this is a huge weight off your shoulders once schooling actually begins. It is one less thing you have to worry about. How you do it is up to you and also depends on your risk appetite.
Option A: Put aside regular instalments into a savings account.
This will earn you minimal interest but is a low-risk and safe way to build your education savings.
Option B: Invest your education savings in shares.
Invest a lump sum to start and contribute a weekly or fortnightly amount into a managed fund and see the benefit of the accumulated investment over 5 years.
An initial $5K investment and regular contribution of $300 per fortnight can see $5K grow to $51K over 5 years (based on a return of 5.6 per cent).
Not a bad outcome to set up your education fund quite nicely.
It all comes down to the way you’d like to save, if you have an initial lump sum you can work with and your investment appetite.
You win either way.
The Pay-As-You-Go Plan
When couples fall pregnant, most won’t have a lump sum to invest into education that won’t be touched for 5 years. The good news is, the Pay-As-You-Go options is just as viable as the Five Year Plan.
Every week, simply set aside your yearly school fees into a separate account that you can then draw down on every term when your school statement arrives. If you are consistent in your contributions and the account remains untouched (no matter what the temptation), this option works just as well.
Whichever way you choose to go, one of the main requirements is discipline. It is very easy to dip into your education fund when your child is only turning one and school seems a lifetime away.
The reality is that time goes fast. You’ll be considering private vs government high schools before you know it. So be prepared and reap the rewards.
If you’d like assistance setting up your education savings scheme, give our team a call to discuss. It’s never too early to start!
