Do you feel overwhelmed at the thought of how you will finance your children’s education? You are not alone. We all want to empower our children by giving them the best possible education, but we don’t know where to begin when it comes to saving for education.
Many of us rely purely on our salaries to pay for our children’s education. We absorb the cost from month to month, tweaking our budgets to accommodate the ever-increasing expense. While we understand intuitively that it would be a good idea to save towards the escalating costs of education, the figures are so intimidating that we end up giving up before we have even started.
So what is to be done?
Shift your mindset
Shifting your mindset away from saving to match the total cost of education or not saving at all, to saving as much as possible, is the first step towards alleviating the impact education fees will have on your future salary. Rather than thinking about whether or not you can reach a set goal amount, understand that the more you save, the more freedom you have to choose from a wider variety of school options or to lessen the burden on your budget.
In Part 2 of this series, we will look at some of the things you can do to alleviate the short-term pain and what you can do to plan for the long term. Our case studies will show you that you are not alone – funding education is an issue most parents grapple with.
Allocating a bigger portion of your cash flow to saving today, means that in the future, a greater portion of your children’s fees can be paid from your savings, going some way towards alleviating the monthly pressure.
What do I need to do to get started?
Getting ourselves out of the starting blocks is tough, but here are some easy steps to get you going:
- Assess your spending habits
Start with a reality check: Get a full picture of your spending habits by keeping a running total of everything you spend in a given month. Write down every item from your morning coffee to that late-night takeaway, money you give your child for the tuck shop and contributions to treats purchased on a whine or whim. You may find that you are spending too much on unnecessary items.
Consider this: It costs more to have a monthly DStv subscription than most minimum monthly contributions towards a unit trust investment. Many financial services companies, including Allan Gray, offer investment minimums of just R500 per month.
- Create a budget
Once you have an idea of where your money is going and where you can potentially cut back, draw up a budget, with the help of an independent financial adviser if you need assistance. A budget will help you to understand how much of your income needs to go to fixed expenses and how much is left to play with. Next, you need to think about your spending priorities. It’s up to you to place saving near the top of the list.
Ultimately, you should look to moving ‘saving’ into the fixed expenses category, making a commitment each month. It’s amazing how quickly you can get used to having a little less disposable income.
- Identify your goals
A budget is the first part of your financial plan and gives you a good idea of where you are currently. The next step is identifying your goals and putting a process in place to achieve them. In this series we will focus on your education savings goal, but you need to think about how to make space for long-term retirement savings and you may also want to have a category for short-term savings, e.g. towards a holiday.
- Understand your options
There are many investment accounts and policies you can use to save for your child’s education. Allan Gray offers a range of unit trusts that you can invest in directly or via an endowment. It is important to research the various options available, comparing costs, restrictions, expected returns and other product features and benefits. Part 3 of this series will help you to understand the range of options available to you, while Part 4 will look at some of the things you should consider if you are saving for an international education.
- Don’t delay
Time is an essential ingredient to successful investing. The sooner you start, the more time you have to make contributions and to benefit from the magic of compounding: earning returns today on the returns you earned yesterday. Many people ask how much is a good goal amount? There is no universal number: Your goal amount is linked to your objective and personal circumstances. Your answer will vary depending on how many children you have, the fees of the school you want to send them to, adjusted for all the annual fee increases, the cost of extra murals, whether any of your children will be awarded bursaries, etc. These factors are hard to forecast on their own, let alone as a collective. By starting now and saving as much as you can, you are extending the level of financial flexibility you will enjoy in the future.
More choice for you and your family
In a world of escalating education inflation, we are better off saving a little each month than not saving at all. It really is true that every little bit helps – so rather than worrying about the fact that you are not saving enough, overcome this barrier and get started. You won’t regret it. Save all you can today to decrease the pressure of the growing cost of education on your budget, and to empower your children with more options in the future.