Planning for school fees
While we are accustomed to labelling the home purchase as the biggest investment we will ever make in a lifetime, where does that leave paying for private school fees, especially for larger families? According to ASIC’s MoneySmart, sending two children to private secondary school could amount to $240,000 in tuition fees by the time they graduate, which for some is equivalent to a home loan. And, that doesn’t account for the extra costs involved with uniforms, books, computers and excursions. Expenses for public schools can easily add up too, with the extras required, meaning that regardless of which education journey you choose, some planning and budgeting is on the cards.
The ANZ School Ready Calculator and Report is a handy tool that uses actual tuition fee information to plan your family’s education expenses throughout their schooling years, across primary and secondary. For families with multiple children, this tool maps out ‘peak’ years when fees are maximised which can guide your savings plans.
Just like any savings plan, the earlier you start the better and for most families, a combination of several strategies is generally the best option. Similar to other lending scenarios, it may be better to focus on paying off existing liabilities before putting money aside or entering into further debt. Here are a few options for saving for education costs:
1. Savings accounts While the good old fashioned option of setting up a savings account specifically for school costs is a conservative approach, it is easy to understand and set up for most families. Make sure the account structure you choose will attract high interest, and if possible arrange for funds to be automatically transferred from your salary.
2. Share portfolio or managed funds If you are starting out early enough, the establishment of a share portfolio or a managed fund with dividends re-invested, can be a favourable option. Dollar-cost-averaging, investing a set amount of funds regularly through a managed fund, can mean less transactional costs, the advantage of portfolio diversification, and the ability to take advantage of price fluctuations for improved returns.
3. Offset accounts Offset or mortgage re-draw facilities are considered one of the most efficient ways of paying off many ongoing expenses, including school fees. If you have an existing mortgage, funds sitting in your offset account reduce your principal loan which in turn reduces your interest liability. This school fee payment option requires strict discipline as debt can quite quickly get out of hand, in addition, it is only effective if you continue to pay additional mortgage payments rather than the basic payments.
4. Term deposits With a set rate of return after a defined investment period, term deposits can offer families improved certainty and assurance they can meet their school fee liabilities. Using a calculator to determine the required savings, you can work back to determine your term deposit duration with confidence.
5. Bonds Insurance bonds or dedicated scholarship funds enable regular contributions over a period of 10 years, and can be a good alternative for other family members (grandparents) to be help with savings. This option does involve some pre-planning as funds aren’t accessible for 10 years, so unless you start early, you may still need to finance the first few years of secondary school!
Making financial plans for the betterment of your future can give you the reassurance that you and your family can maintain an expected lifestyle, while at the same time appear daunting because no one can 100% predict what the future markets hold. Loan Studio Financial Advisor, Brendon Honeyford can develop an individual investment strategy for you to incorporate your future.