Saving for your children’s education fund is one of the most important things you’ll ever do. Even if your family budget is a bit tight, any investment advisor will tell you that future costs of tuition could destroy your budget. Below are a few tips for building your children’s education fund.
Set-Up An RESP
Making monthly contributions or an RESP contribution (registered education savings plan) will help you get access to Canada’s Education Savings government grant, where the government contributes up to $2k for eligible children ($500 for the first year and $100 per year until the child turns 15). RESP also provides a method for you to generate tax-deferred income.
Use Tax-Free Savings Accounts (TFSA)
A TFSA is ideal for long-term investing. Interest and investment income through a TFSA is tax-free. When contributing to your TFSA, you can buy stocks, ETFs, mutual funds, and bonds as investment types. TFSAs can also be used to open high-interest savings accounts.
Using Mutual Funds to Save Towards Your Child’s Education
Investing in mutual funds and debt mutual funds at the same time is also a good strategy for investing funds for your child’s future education. How you invest will be determined by how much time you have available. For instance, if you have 10 years to save towards your child’s education, a good strategy would be to invest 80% in equity mutual funds and the remaining in debt mutual funds. You can also set up 2-3 diversified multi-cap equity funds to start a SIP (this is where a set amount is automatically invested for you at regular intervals) and have a short-term debt fund too.
On the other hand, if you have 6-10 years to save, you would be better off investing 50-80% in equity mutual funds and the remainder in debt mutual funds. You can start a SIP in the same way, but aim for 2 short-term debt funds instead of one.
Using Bonds to Invest in Your Child’s Future Education
Investment bonds are undoubtedly a flexible route for investing in your child’s education while still enjoying tax effectiveness. Parents would invest on behalf of their children and transfer ownership to them at a later date. You can access investment bonds through a life insurance company which come in various forms, such as bonds, property, shares, and mixed-asset portfolios. These bonds can be used to pay for education expenses such as textbooks, course fees, and even primary, secondary, or tertiary education.
How Much Should You Save?
To afford your child’s tertiary education, you’ll need to set fixed monthly contributions towards your children’s education fund. Financial experts recommend that 3% to 5% of your salary be saved monthly.
Set Strict Goals
If you don’t have savings goals, your savings efforts may fall by the wayside. Set realistic goals to help you save towards your children’s education fund over time. For instance, view your monthly contributions to the fund as a set expense that you simply don’t negotiate on. If you find yourself skimping on savings, it will become a habit, and you’ll fall behind. Keep the funds saved separate from your regular spending money, and choose investments that will help you reach your targets instead of putting everything at risk.
If you’re seeking investment advice to assist with planning for your children’s education fund, visit the Nour Private Wealth website! Our expert services in Canada include investment planning and wealth planning, ensuring a bright future for your family.
Contact us today to receive the most up-to-date advice on creating a family budget that aligns with your long-term goals and to learn how we can help you build a strong children’s education fund.
