“I have three children ages 4, 8 and 11. I’m worried that I have not been saving any money towards sending them to university. Right now it’s sometimes hard to find the school fees and money for extra activities, but I don’t want them to have to struggle to afford university.
“What can I do with my limited budget?”
The high cost of raising children is a reality that is never going to get easier. Sometimes it’s not that the money isn’t there to pay the school fees, but that parents didn’t start saving early enough to take care of the costs.
The saying “If you fail to plan, you plan to fail“ is really applicable in this case. I think that sometimes we look at the word ‘plan‘ as a bad four-letter word. We live from day to day without a clue for the future, hoping that some happy coincidence will provide us with what we need to survive.
It’s one thing to adopt this attitude when we’re only thinking of ourselves, but when children come into the picture, we owe it to them to plan for their future.
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Congratulations on seeking advice to give your children a better future! Let’s address your first concern about meeting the current school expenses. It’s much easier to put aside a smaller amount each month than to try to find one lump sum for school fees in September. Here’s a good way to ensure that when the school term starts you’re properly prepared:
- estimate the total you expect to spend for the year on school fees, books, lunch money, traveling, etc
- divide this total amount by 12
- put aside this amount every month into a short term account with the highest interest rate you can find
- keep this special account only for paying out all school-related expenses
This plan works if you’ve been saving for several months before the school term starts. If not, you may have to consider joining a reliable partner plan that can give you the draw when the fees are due. For the longer term, however, look to investing your money for the added benefit of earning interest.
While you’re putting aside to meet the current needs, start a plan for their tertiary education as early as possible. Let’s look at some college costs, taking inflation into consideration.
Assume that the current cost of a social sciences undergraduate degree is J$130,000 per year over three years. If we increase this amount by 5% per annum (and this is conservative) over the next eighteen years, the total three-year tuition cost at that time will be almost J$1million! This is the bad news that inflation brings.
The good news is that if you started to save as soon as the child was born, this expense would be a lot easier. You could put aside about J$2,000 per month at an average return of 8% per annum, increase your investment every year to stay ahead of inflation, and achieve this goal.
The sooner you start, the less you need to save, thanks to the magic of compounding.
I would advise you to seek assistance in planning for your children’s college fund. There are several financial companies that give free advice and take the uncertainty out of the picture.
The advisor would help to factor in inflation into your planning, so that the target amount you’re saving towards will meet the goal. You should also get guidance on insurance to protect your kids’ future in case of your illness or death.
What if you do all the planning and it’s still difficult for you to find money to put aside? Being realistic, many people will find it almost impossible to send three children to college from their savings. Don’t despair if what you can save is not enough to reach your target.
How about bringing your children into the planning process? Have a frank talk with your older children and sensitize them about the role they have to play in ensuring that their future is bright. Scholarships are available for students with the right attitudes.
Encourage them to take part in sports and other extra-curricular activities, as good grades are not the only criteria. Help them to find summer jobs so that they can put some of their income towards college fees. Without applying too much pressure on them, let your kids realize that the key to their future success ultimately lies with them.
Copyright © 2006 Cherryl Hanson Simpson. No reproduction without written consent.
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Originally published in The Daily Observer, March 16, 2006
Cherryl is a financial columnist, consultant and coach. See more of her work at www.financiallyfreenetwork.com and www.financiallysmartonline.com. Contact Cherryl