It’s not just August heat that has more than a few parents sweating. It’s back to school time and with it comes even more sweating with the reality of hefty school fees – be it for a bilingual nursery, boarding school or an overseas university. To help manage the stress – and the sweat that comes with it! – financial planning expert Michael Wan gives his top tips on saving for your child’s school fees.
Plan in advance
It is always so much easier to save long-term rather than scramble for cash at the last minute, just when you have found out that your son has just got admitted into Oxford. Start saving for tertiary education as soon as your baby is born. It’s always much harder when there are only 5 years to go before your child enters university. Giving yourself a 15 to 18 year timeline means that you can spread-out the regular savings amount much more comfortably.
Set a goal
So how long is a piece of string? Are you going to send your child to a UK boarding school in the secondary years? How can you tell if your child will end up going to university or even go on to study a PhD degree? That’s why you need to plan ahead, just in case you need the money. So having clear goals help to map-out your savings plan.
Invest or not invest?
Not everyone likes to invest their kid’s future in a risky financial portfolio, although using an investment portfolio for savings such as shares or funds may have a chance of higher expected returns. If you are not an investor, look for guaranteed products that will pay you a lump sum or a stream of cash flow in the future. At the end of the day, the returns might be lower, but it may give you a greater peace of mind during the savings period. However, if you are willing to invest, choose a portfolio that matches your acceptable risk level – and not an investment just because it rose 20% last year. Remember, financial advisors are not magicians and even Warren Buffett can sometimes make mistakes. So don’t rely on your financial advisor to suggest a basket of funds. Do your homework! Choose a savings plan that works for you.
Have a Budget
We often hear dads say how many Ferraris they could have had, in relation to the expenses spent on raising kids. Yes, kids will cost you your Ferraris but hopefully they will provide you with years of the same levels of enjoyment – if not more! Furthermore, there are peer group pressure from your friends when it comes to all those ‘must do’ activities. Let’s face it, every parent wants their baby to become superman. So budgeting is the only way to go. Be conservative when you are allocating towards a savings plan because you can always add to it later on.
Create an excel report and categories your expenses. Have a monthly family discussion so that the husband and wife both understand where the money is going and how much. Communicate and work together. Prioritize your kid’s activities.
Insurance companies often provide free financial analysis to help you understand your financial position. It’s not the end of the world to see that you are overspending and not adequately protected from unforeseen circumstances. This is the reality for most people, but as long as you know the situation you can at least work to change it to live within your means and make the best of what you have.
We all have unnecessary expenses and if we know what we are spending money on exactly you are then able to allocate your income sensibly. (Did you know that you could save at least HK$900 a month from just drinking one less cup of coffee a day?) Just like sailing, you will constantly be making adjustments in your finances.
Review your plans
As mentioned, review your family expenditure once a month. Review your education funds and meet your financial advisor at least once a year. If your education funds are investment related, review it at least every season. And consider making changes to your savings plans if your circumstances have changed such as having an additional member in the family, or if the investment markets have changed their long-term outlook, etc.
-Michael Wan (commonly known as “Michael-Manulife” in expat circles) is a British born Chinese with over 14 years of experience in financial planning and personal clients that now span over three generations. Currently, Michael is a Life and Qualifying Member of the Million Dollar Round Table, an international association of financial advisers with high ethical standards. He is also a Fellow, Chartered Financial Practitioner (FChFP). You can get in touch with him (and get a free consultation), by dropping him a line at [email protected].com.hk or giving him a buzz on (852) 9866 6268.