Plan now for higher education costs
While fees are expensive, there are ways to save
Higher education is expensive – frighteningly expensive.
For most parents, providing for their children’s education is second only to retirement as their largest investment goal.
However, even with diligent saving, the first tuition bill will still be shocking, so plan ahead. With proper planning, parents may be able to address education costs in an organised way.
Think it’s impossible?
It’s not. First just ask yourself this. Do you have a preferred school or university?
Like most parents, you probably have a dream school in mind. Maybe you have searched around and discovered that sending your child to a private school, where hundreds of rich, influential and wildly successful people have graduated is a great idea.
Let’s say this idea sets you back R250 000. To be fair, this is an extreme example, so do not throw in the towel yet.
The current statistics for most schools are not quite as discouraging. The higher the education costs, the higher the amount you are required to invest and for a longer time.
Are you also aware of the additional costs?
The biggest mistake investors make when thinking about saving for education is to ignore the daily expenses that your child adds while still in school and university. The widely used education costs calculator tool excludes expenses such as textbooks, computers, uniform, extramural activities, transport, food and accommodation.
That said, no matter what number you have in your head for the above items, it probably is not enough.
Did you know that today shared student housing might cost R2 500 a month, or annual fees for catering residences are R53 873 60 at university? To pay that bill for four years, you will need to set aside a significant amount a month from birth through to age 21.
Also, are you using the right investment product?
Most investors do not have the knowledge to choose a product that is suitable for their personal circumstances and investment goals.
They appoint a financial adviser to make this decision on their behalf. A lot of people are inappropriately invested in endowment policies for education purposes.
There are many ways of saving for education. Here are the options available to you:
A unit trust is a flexible
● investment which allows you to invest in various asset classes using relatively small amounts o f money;
A tax-free account is a flexible
● investment that allows you to save on a tax-free basis; Endowment enables higher
● tax payers to save in a tax-efficient manner and it has estateplanning advantages.
Do you know the required return to achieve your goals?
Your planning process should result in an estimate of the return required to achieve your objectives. Determining your required return can narrow the range of asset-class choices. Most importantly, it helps to structure your investmentrisk profile and strategy.
How often do you review your investment?
Parents are highly involved in their children’s academic development and the score that matters to them is the child’s quarterly school report.
The same approach is critical for your investments. Many people often ignore their investments only to deal with the negative surprise when it is time to use their savings. Your investment must be reviewed periodically to align it with what is important to you at every stage of your life.
With planning, parents can address costs of studies in an organised way