Want to provide tertiary education for your child? You need a financial plan.

The cost of good education does not come cheap. Factor in private schooling over 12 years with another five years in tertiary - you are looking at R2 Million to get your child through it all. This might even be a conservative estimate based on today's numbers.

More than one child? Double or triple this cost...

Having a financial plan is crucial.

When should I start?

You should probably start thinking about it when your child is born. But, with all the other expenses of a new baby, and given that his or her school years feel so far away, most people don’t think about their child’s education until much later.

The truth is that you can never start saving too soon. And the sooner you do, the more your savings will grow to reach your goal of offering your child the best education.

Clearly, time is a factor.

Where should I start?

It is impossible to know what career or profession your child will want to pursue. But if you’d like him or her to have the option to study further, start planning by doing a few sums.

Find out what it will cost for your child to do a three or four-year degree, so you know how much you need to save every month. Even if you can’t save the full amount every month, save as much as you can. Stay on plan. Don't bail out.

What savings options are available to help me save?

• Tax Free Savings Account

A Tax Free Savings Account (TFSA) is an effective way to save for longer-term goals, like your child’s education, as you pay no tax on investment return. As a result, your money will grow faster in a TFSA than in a regular savings account.

You are allowed to invest up to R30 000 per tax year, and up to R500 000 over your lifetime without paying any tax on the growth of your investment. There are no dividends, capital gains or income tax payable on a TFSA, as long as your contributions remain within the above-mentioned limits.

With a TFSA you can also access your money at any time without penalties – but it will be important to keep in mind that it is not possible to replace the money you’ve withdrawn.

• Unit Trusts

A unit trust allows you to make lump sum payments or monthly contributions towards saving for your child’s education. You can invest in a range of asset classes, such as equities, bonds, property and money market instruments.

There are no minimum investment periods, so you have access to your money within hours, should you need it. But remember that you’ve invested in a unit trust for the long term, so it will be equally important not to touch your savings in a unit trust unless it’s really necessary.

Do these savings plans cover expenses?

Your savings plan can be used for any need your child may have including;

• education
• a car
• accommodation
• living expenses

Even though you saved for your child’s education, the money can be used for anything that he or she may need in relation.

How much can I expect to pay every month?

That will depend on several factors, including:

• how much you can afford to pay each month
• the sooner you start in advance
• the cost of the course as the aim

Example: You want to save R100 000 with monthly contributions that remain the same over time. Let’s assume that you earn interest on your savings at a rate of 2% per annum above inflation (after tax and costs).

This is what you’d need to save:

• If you start saving in year one of your child’s life, you’d need to save R214 per month to reach your goal.
• If you start saving in year six, you’d need to save R372 per month to reach your goal.
• If you only start saving in year 11, you’d need to save R752 per month to reach the R100 000 goal.

I can help you to calculate how much you need to save for your child’s education, as well as the best savings vehicle in which to invest.

Remember, whatever your hopes for your child – when it comes to saving for his or her education, the sooner you start, the more money you will eventually have, and the less you’ll need to save each month.

Nigel Willmott | 0761127678 | nigel.willmott@momentum.co.za