4 tips to save for your child’s future
Your child’s education is one of the biggest developmental, emotional, social, and financial investments you can make in your child’s future. We can only speak on the financial side, and boy does it come at a price. According to Futurity Investment Group, a Perth-based education beginning in 2022, from Kindy to Year 12, is $76,229 for a public school? If you think that’s high, private school fees for the same period average out to $215,554…
The cost of education can be startling and seem like an uphill battle. For many families, schooling puts a real financial strain on the budget, but it’s made a little easier with these five tips.
Start early
It might seem obvious, but the sooner you start saving, the more you’ll reap the benefits later. Sooner is better, but it’s never too late. Even if your baby isn’t a baby anymore, any spare dollars that you can tuck away will help support your child later.
The most practical way to do this is with a savings plan, as opposed to ad-hoc saving when you can. You could do this with a planned budget and automated savings account, a diversified investment portfolio, an education bond (more on that later) or all three.
Offset your home loan
Like many families, you might find yourself trying to cough up school fees at a time when you also have a hefty mortgage. Our advice? Park education funds into an offset account so both expenses benefit. Just know that this may not pay returns in the long-term and requires disciplined saving. For example, you might be tempted to dip into the funds for other expenses like car services, home repairs, or even a holiday. Staying diligent with saving is best for your offset account (and for you).
Education bonds
Education bonds are designed for you to tax-effectively save and invest to accumulate the funding for education-purposed objectives. They have been a popular strategy for some time, with $1.1 billion invested through education bond investment giants Futurity Investment and Australian Unity. It’s essentially a regimented savings plan that makes it easy for parents to tuck away extra dollars on a regular basis.
The main drawcard is an education bond’s tax benefits. If you're on a marginal tax rate higher than 34.5%, you can benefit from a lower tax environment within the fund because it’s taxed on its investment earnings at 30%. Plus, all investment growth is automatically reinvested, adding to the ever-chased compounding benefits of the lower-taxed environment.
If we’re honest, the downside is its flexibility (although some claim to be flexible). Generally speaking, you must hold the bond for 10 years or more and the payments are fixed. For some, the inflexibility isn’t actually an issue. However, it does mean parents can be “locked in” to a savings approach that doesn’t allow for lifestyle changes, such as the preference for a public versus private school. Anyway, the benefits tend to outweigh the downsides, so it’s worth a look in to see if it’s right for you.
Seek advice
Our last tip points you to our doors — seek advice. Your child’s education is pretty important, and one of the biggest investments you’ll ever make. It’s worth sitting down with someone to help you organise your finances in a way that optimally supports saving for your child’s academic future. We're ready to talk.
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