How do we plan for education expenses?

Wanting to give children all the opportunities that education can offer is one of the most frequent conversations I have with clients. 

Now, this isn’t a conversation about public versus private education, and the merits of each. It’s a conversation about how to put yourself in the position that money isn’t an obstacle for the education (or whatever opportunity you’re seeking) you want to provide for your children.

Mr. Pritchard and I had this conversation, long before we had children. At that point, we weren’t sure what we wanted for the future, but wanted to ensure that whatever it was, we could fully fund it. 

Fast forward a couple of years, we still didn’t have children, but we decided that we were really happy with the idea of a public education. That’s the education we received and we both turned out brilliantly, of course.

It was a wonderful moment in my financial journey to know that we were making that decision because it was what we wanted, and not based on what we could (or couldn’t) afford. 

We decided to redirect the funds we had accumulated for education purposes into our holiday home, and a recreational rural lifestyle for our future family - a different kind of education. 

If you’re like us, and feel that public education suits you and your children’s needs, the conversation is relatively brief. You can pat yourself on the back for a job well done. Of course you will still need money over time to pay for this and that associated with raising children, but you won’t need to stump up big chunks of money involved in private education.

Where do you start

If you want to keep the option open, or know that private is for you, getting organised early is the key. 

Using your children’s age, we can calculate with reasonable accuracy when you’re going to need money, and roughly how much based on average school data, or actual data if you have your heart set on a particular school. 

If it’s a couple of years away

If there are less than three years until your child hits school age, this means saving cash and/or ensuring the ongoing cost of the education works with your household budget. 

If you’ve got a mortgage, the best value for you will be to save cash for your goal, directly into your offset account. 

If you don’t have a mortgage, a high-interest savings account (without any fees) is your strategy.

Cash right now isn’t sexy, it’s slow, and feels like we’re not doing much. But, that’s the reality for short term goals, we must accept a low (or no) return, in exchange for not taking on any risk. 

Set-up an automatic savings plan, with direct debits, to ensure you’ve got the cash you need building up. A dedicated bank account for this purpose can be brilliant so that the money is sacrosanct, and that you have the peace of mind that it’s there for that purpose (so there’s no nasty bill shock when the fees are invoiced). Using this account once your child starts school can also be useful to pay for all the field trips, art supplies, levies etc. that never seem to end. 

If it’s a long way away

When I say a long way, I mean more than three years. This is the tipping point for moving away from cash and into an investment strategy. You can and need to be thinking about investments for this purpose. 

This is because we’ve got time to account for any volatility, and taking on a bit of additional risk will likely be compensated by higher returns than saving cash. 

When assessing your options, the level of “growth” (such as balanced, growth, high growth) will line up with how much time you have until you plan to reach your goal. The shorter the timeline, the less growth (and therefore less risk). The longer the timeline, the higher growth you might be open to. 

Investments such as exchange-traded funds (ETFs) or listed investment companies (LICs) will give you an opportunity for growth, and diversification, at a reasonably low cost. 

Your investment structure is also worth considering: maximising tax benefits from a structure like an insurance bond can add extra $ to the bottom line for you and your children. 

With any investment, do your research and get help if you need it. But most importantly, get moving. 

Time is your biggest investment advantage, please don’t squander it. 

You don’t have to have a lot of money to get started, but you do need to get started to have a lot of money.