Financial Planning to afford your child’s Private School Fees

Being a parent and affording school fees isn’t always easy.  A survery conducted in Australia in 2006 found that 55% of parents heavily underestimate the costs of educating their children.  Over the past decade, the number of children attending private schools in Australia has risen by more than 25% – and with this is the increased cost of education.  On average, the cost to privately educate a child through primary and secondary school is around $155,000 – that’s per child! – and the cost continues to rise.  The Australian Bureau of Statistics (ABS) found that between 1982 and 2003, the cost of education increased on average by 7.3% per year (compared with an average increase in inflation of 4.4%).  Based on the current Consumer Price Index (CPI), secondary education figures, a child born today will cost almost $40,000 to send to a private school for Year 12 alone!  To afford these expensive school fees you need to start thinking now about financial planning to help you.

Financial Planning for School Fees

You should think of the task of affording school fees just like any other investment.  It’s a matter of balancing risk and return, and thinking about the time frame which you have to work with.  When it comes to affording to educate your children you have to save for it,  or make it through investing and wealth creation.  The most powerful is a combination of both of these methods.

1.  Saving for School Fees
This strategy is all about finding the most efficient form of savings possible.  This could mean a savings account, regular savings into a more aggressive investment, paying down your mortgage, or even reducing your credit card debts.  It’s about financial discipline and efficiency.  As an example, say you had a personal loan at 14% interest.  For every dollat that you pay off this loan, not only are you 14% better off, but unlike the interest that you would be earning from a term deposit, you don’t have to pay tax on this.

Tips for saving for your child’s school tuition:

  • Know your financial position.  Do a budget and a financial position analysis.  Understanding where you’re at financially can help you take affirmative action to get your savings on track.  Use our free Budget Calculator and Financial Position Calculator to see just how your finances stack up.
  • Effective savings strategy.  Choose the right savings strategy for you and make sure that where your savings goes maximises your benefit as far as possible and within your comfort levels.
  • Efficient savings.  When you’ve set up your savings strategy, make sure you’re efficient and save as best as you can.

2.  Weath Creation to Afford School FeesMany people are tempted to jump straight into the wealth creation side before becoming experts in the savings but be warned, in the same way as a building needs strong foundations, your financial future requires you to have perfected the effective and efficient use of what you’ve got before making the transition to generating greater returns from these foundations.  The options and possibilities are almost infinite when it comes to investing and generating returns for welath creation.  For this reason, it’s important to understand what your capacity is both in a monetary sense as well as an emotional sense.

Growth assets such as Australian and International shares and property may be the first port of call as these types of investments tend to generate the highest long-term investment returns.  If you start early and have a longer time-frame to work with, you probably have the time to ride out the normal volatility waves which are common to these types of investments.

If you don’t have the luxury of a lot of time to invest, you may have to be more cautious in your wealth creation strategy.  One idea is to establish a savings plan through a flexible mortgage.  This way parents can pay off the home loan as fast as possible and re-borrow funds at the beginning of each school year.

Tips to wealth creation for school fees

  • Investment time horizon or time frame.  As with all investing, time is your biggest ally.  Start thinking about your investment strategy as early as possible – preferably when your child is born.
  • Be aware of your investment risk personality.  We’re all different.  Some of us are comfortable taking bigger risks than others.  This is also true when it comes to investing.  Make sure you choose an investment strategy that you’re comfortable with.  It has to pass the “sleep at night” test.

Saving and investing for your child’s education is something that needs and deserves careful thought and planning for success.  A Financial Spectrum financial planner can help you identify the right strategy for your circumstances.  Book now for your free first meeting with a financial planner in the Sydney CBD or give us a call on 1300 886 018.


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