Week long news bulletins headlined by schoolies and toolies means only one thing. School is out, summer is here.
And whilst most parents spend alot of time over the next few months on how to keep their tiddlywinks occupied (it’s fair to say there’s only a certain amount of times you can take a kid to the zoo), one of the most common oversights is planning to fund future education costs.
Over the last 25 years, school fees have sky-rocketed and they aren’t showing signs of stopping.
It’s not just the school fees either, it’s books, tutoring, that 3 day camp to Ern Halliday and of course, the uniforms. Not to mention University fees.
If you’ve started going through The Wealth Map you’ll have learnt that one of the five major causes of financial pressure (read: stress) is failing to plan for large future expenses. Education costs are the number one reason.
If you don’t plan ahead, you’ll find yourself having to sacrifice alot to get your kids through private school. It could mean no family holidays, no new clothes, no parties or even cancelling critical insurances to make ends meet. Worst of all, you’re likely to end up in a debt spiral, having to rely on credit to balance the books. It’s a recipe for disaster.
I feel you already know what the solution is. But are you doing it?
The first step is to work out what your costs are going to be moving forward. And we mean for all kids. If you are planning on having more kids, you should considering what ages they could start school.
The costs you need to think about for each year of schooling are:
- School Fees
- Extracurricular Activities (Music, Sport, Tuition)
To save you time, its probably easiest to try a few online calculators. The ANZ School Ready app is a great tool for comparing different schools in your area and allows you to create a timeline for your kids.
The numbers are likely going to scare you. Especially if you have a few kids who will be attending high school at the same time (Dare I say, this could come in to consideration when planning your family).
Step 2 is to work out in what years you are going to need those funds and therefore how long you have to start saving. If you are spreadsheet master you can probably work out which years are going to be the most expensive. If not, the ANZ app can produce a report for you with some great analysis of year-by-year costs. They’ll email the report rather than give it you directly because well, that is how banks think.
Step 3 is working out what you need to put away to foot these costs when they fall due. Remember that if these are the schools (and costs) that you are happy to accept, then you are going to have to pay for them at some point.
If you find it to difficult to calculate, we help clients all the time with education planning and can help determine a savings plan that works for each child.
In reality, there are going to be sacrifices that still need to be made when your kids reach the most expensive part of their education, but by starting early you can reduce the financial impact (read: stress, again) that education costs can provide.
Where do you put those savings?
Great question you ask. This is the 4th and final step. There are many options that you can take for saving your kids education funds.
Dedicating an individual bank account for each child can be a good step. This allows you to identify how much you have accumulated for each child at any given time.
If a bank account makes you feel most comfortable, we recommend using a bank separate to your everyday banking, this is will stop any temptation to “dip in”.
You may not have heard of an Education Bond but they are a great option for saving your kids education expenses, and whats best, is the interest you make from the savings is 100% tax free if you use the funds for education costs. You can invest in all types of funds, or you can just keep it in a cash fund. If you want to know more, please get in touch.
You can also get great tax advantages by paying for your child’s University fees, but note your child must be born before commencing an Education Bond.
Stay away from these. They are offered by a few providers in Australia (ASG for example). The returns they provide you are negligible, they are difficult to understand and if you want to access your money, you’ll lose all if not most of your interest. Pass.
If you have time on your side…
If you do have time on your side, it’s a great idea to start putting money aside to fund future education costs, but it’s also critical that you continue to crunch your mortgage and other debts to put you in a strong financial position when the bigger bills come in later in life.
If you are already doing this, great, sit back and enjoy those pre-payment discounts and zoo trips this summer, if not, get to work!
In the meantime, if you have further questions or you’d like to discuss your situation in more detail, please get in touch.