We are about to have our third child shortly! While this will turn life upside down (again), quite often people remind us of the looming tidal wave of school fees ahead (as if day care fees weren’t bad enough). With the cost of the top private schools being as much as $25,000 per year, this is a regular discussion I have with clients.
So what can be done to ensure you can afford the fees when the first day of school comes along? Well, some ideas are:
Start a savings plan now. Products like education bonds are no good because they still pay tax and have underlying investment and contribution fees. Paying off the home loan is the best option, with an interest offset account so the extra payments can be redrawn later on. It’s a guaranteed investment return at your mortgage rate and its tax free. Though I will stress, it’s important to have discipline and ring fence your accelerated payments from being spent and seeing it as a goal you are working towards.
Can you increase your income? Think about an additional job, having a partner going from 50% to 80% employed and earmarking the extra income. Perhaps you can start a business, which can open up numerous other areas for tax planning to help you get ahead.
Think about the schooling mix. State schools along with other faith based schools can be fine, even a good option in the early years before sending kids off to the big expensive private school.
Borrowing to buy income producing investments. Doing this and reinvesting the net earnings to create your own private educational fund. This is probably the higher risk approach, but if you start around birth and can take a long term view on the investments, the percentages swing in your favor. This approach tends to be better with shares as opposed to a big single asset like a property, shares also have franking credits giving them a tax advantage and can be sold down gradually. Ownership of your educational fund should be with the spouse on the lowest marginal rate of tax or a family trust that provides more flexibilty.
Finally, be very nice to your own parents as you may still need them one day!
Rob
Rob Gilmour is the Managing Principal of Wealth Simplicity. The information provided should not be considered personal financial advice as it is intended to provide general advice only. The content has been prepared without taking into account your personal objectives, financial situations or needs. You should seek personal financial advice before making any financial or investment decisions.