Parenting is a massive responsibility. Naturally, you will want to provide the best of everything to your child from healthcare to education. To do this effectively, you will need a fool-proof savings plan. Plotting the course of your child’s education might seem daunting at first. However, keeping the following factors in mind when choosing an education savings plan should simplify the process:
Start Planning Early
One of the easiest steps you can take to ensure a good education for your child is to start planning early. Planning for something which is two decades away might seem far-fetched to you. But this gives you more time to build up your target funds through the magic of compounding. The more time you have to save, the less you need to be saving every month.
Set Your Target Amount
Deciding how much you want to save will give you a clearer goal. To determine your target amount you must consider:
-The university of your choice
-The preferred course of study
-The number of years before your child requires tertiary education
-Overseas or in Singapore
Once you identify the approximate amount you need, you can figure out how much you should be saving annually to reach the target.
One of the common mistakes in planning your savings is to overlook inflation. For a Singapore undergraduate education, the average cost right now would be S$40,000. If you take the annual inflation rate of 1.6% then the amount would stand at about S$55,000 in 20 years. If you take into consideration the projected inflation, you will be saving yourself from an unpleasant surprise when your savings plan matures.
If you couple this with the compounding interest rates, you can figure out exactly how much money you should set aside every month. There are several online calculators to make these computations easier for you.
Investing to Grow Savings
Diligently saving a large amount every month is a safe way to build up your savings. But this is an inefficient way to grow your savings. You can earn a higher return through careful investments. There is of course a certain amount of risk involved in investing but you can minimize it by taking certain steps.
By adopting a long-term approach with your investments you can reduce the risk. Your investment will be able to ride out the highs and lows of the market over the longer period giving you an assured return at its maturity. Another way of ensuring a risk-free investment is to opt for a savings plan that does the investing for you. These will give you a guaranteed return alongside a non-guaranteed portion.
Endowments are perfect for the parents who do not want to take the risks of aggressive investments but still wish to get higher interest than what the banks will offer them. There are endowment plans specifically designed for children’s education. These plans spread the maturity payout over the University years instead of providing a lump sum at the end of the policy. Some endowment policies also offer certain flexibility of payouts before University age.
If you haven’t started saving yet, now is a perfect time. Today, there are several endowment savings plans that allow you to save large amounts over a shorter duration of time. You can also choose to pay a single premium or choose to pay regular premiums for 5 to 30 years. Policy terms are equally flexible with better plans offering tenures ranging from 10 to 30 years.
Protect Your Savings
Since you have visibility of when you will need the money, you should ensure to protect the money as the date draws near. You should not lose a chunk of your savings due to an unpredictable economic crisis just before your child’s college admission. Endowment plans and investments will help protect your goals in this regard.
A well thought out savings plan will help your children get the high-quality education they deserve. Keeping these factors in mind will help you find the policy or savings plan that is perfect for your child.