The importance of education planning
Providing for your family is important. A financial plan helps families create a carefree future and education planning plays an important role in that. How do you start making an education plan? Is it better to start saving or investing? And what do you need to know when it comes to making sure you and your family have the means to get educated? In this blog we give you more information about all aspects of education planning.
Saving for university or other education
Setting aside financial resources is always a good thing to do, especially when it comes to funding the cost of education for yourself or other members of your family. Tuition fees, books, accommodation and other related costs associated with education are some you can keep in mind. Whatever the level of education is, primary, secondary or tertiary (college or university), ensuring you have sufficient funds available to cover those expenses will make the life of you and your family members a lot easier.
Making an education investment plan
It all starts by estimating the future costs of education. Not only the desired quality of education gets into play, factors like inflation and anticipated tuition fees play a big part in preparing to create an education investment plan. There are several aspects you need to keep in mind:
Setting a goal
When children are involved, it can be a little bit harder to decide on a goal. When they are young, it is hard to figure out what their plans might be in the future. Nevertheless, it is good to determine an educational goal you would love your family to achieve. Think about what specific college would be fitting or what degree they might pursue.
Make an estimate
After thinking about the goals your family members might have you are able to make an educated guess about the costs of their education. You can check what tuition fees there are, which accommodation might be needed and what the average costs are for the books they might need.
Make a plan
So now you have your goals and estimated costs. Congratulations, this means you have the right information to develop a well-thought financial plan! Don’t forget to consider the investment options that are available, like education-specific savings accounts, 529 plans or other tax-advantaged accounts. No idea what to look for? A financial advisor can help you with that.
The sooner, the better
As mentioned above, it is always hard to decide what the future of your children may hold. But the earlier you start, the more time you have for your investment to grow. So starting early can make a significant difference in reaching the funds that are necessary for the education of your family.
Stick to the plan
You might have an awesome plan at hand, but if you don’t stick to it nothing will be achieved. Yes, life changes can make it hard to keep on track. But hang in there, because consistent contributions to your education savings plan are crucial for reaching your financial targets.
It is good to remember that you don’t have to do everything all on your own. There are always ways you can get some support in financing your education planning. It is good to research your potential financial aid options, like grants and scholarships. This may help to reduce the financial burden for you.
Let’s be honest, there are always bumps in the road. And as much as we, as financial advisors, would like for you to stick to the plan.. there are always changing circumstances. The economy, investment performance or a change in education costs. There are always times you need to reevaluate and adjust.
Investing or saving?
Whether it is better to invest or start saving depends on various factors. Your current financial situation, timing, the risk you are able to take and the goals you want to achieve are aspects that affect this decision.
It is always good to evaluate your current financial situation. You might want to put your child in private school, but maybe public schools are a better option. Also, timing can be crucial in making this decision. When it comes to education planning, you may need to prioritize long-term planning over short-term goals. Want to travel the world? Well, it could be good to postpone that trip. Have some unseen costs that you need to cover? You may need to focus on immediate needs before you are able to make a big investment. It all depends on the financial resources you have available to afford to invest in education. Sometimes, making more budget-conscious decisions and exploring cost-saving options can make a big difference.
But when it comes down to it, both investing and saving can play an important part in funding education. So a combination of the two approaches may be beneficial. We’ll tell you more about that later in this blog.
Starting an education investment fund
Investing is a way of saving, but like any investment it does come with some risks. But an education investment fund is specially designed to help you or your family save and invest for the educational expenses you might have. They are structured to offer various tax advantages and incentives that help you to be encouraged to save for educational goals.
When the funds are used for qualified educational expenses there are potential benefits, like providing tax-deferred growth and potential tax-free withdrawals. One common type of education investment fund is the 529 plan. An education fund allows the account holder to designate a beneficiary, like your child. Your child will then be able to receive these funds for educational purposes. These types of education funds offer a range of investment options. You can work with mutual funds, index funds, and other diversified portfolios. Your financial advisor can help you find an investment strategy that works best with your current situation and the goals you want to achieve.
But what if your child does not want to pursue higher education or receives scholarships? Even though these funds are primarily intended for education, they do have some flexibility. So if your child – for some reason – is not that able or eager to get educated, there are always options to make use of their funding.
Investing in financial markets offers you the potential to get a higher return in the long term. Highly useful for when you have a longer time horizon before the education expenses will occur. Start early and you might be able to grow your fund in an exponential way.
Creating a college savings plan
Saving money is always the safe option. Starting a traditional savings account lowers risks and offers capital preservation. It is suitable when a short-term boost of educational funding is needed. Saving is a good option for when you need to make sure a certain amount of money is readily available. You can access the money quickly and easily. Saving accounts and other similar fixed-income options have predictable returns and are not affected by market fluctuations. If you are a very risk-avoidant person, this might be the most reassuring option for you.
Sounds good, right? But keep in mind that you really need to structurize your contribution to your education savings account. The best way to do this is to automate it. This will help to ensure you consistently add money to it, without having to remember it. Saving money can feel like a slow process, but when you make the most out of your situation you are able to speed up the process. Does your financial situation improve in some way? Did you get promoted or even get a bonus? Consider using these extras to add to your educational savings account. Add it structurally when receiving a promotion or add it occasionally when other temporary benefits come along.
Another way to speed up the process is to evaluate your expenses. Identify areas where you can cut on your expenses and redirect those towards your education savings. It is always good to keep track of your situation and the financial plan you made. Make adjustments when needed to optimize your progress.
Get Ready to Tackle Education Costs
For parents that want to ensure their children’s access to quality education, education planning is an essential aspect of financial planning. It is a way to provide a structured approach to fund those expenses and helps achieve educational goals. Do you want to invest or start saving? We mentioned before there is always an option to do both! Combining the two might be beneficial for you and your family.
Start by separating your short-term and long-term goals. Create an emergency fund that will cover unforeseen financial emergencies, before you focus on investing. Make regular contributions and continuously assess your financial situation. With a well-balanced plan you are able to make the most out of your situation. Feel free to contact us for more information.