Tuesday, 27 July 2010

Lump sum saving for School Fees

There is no denying that private school fees are expensive so having a strategy of how reduce the cost is for most people, quite important.

There are many ways to tackle the school fees burden which I intend to look at over time however below is how you would use a lump sum investment to help pay school fees.

What you read on this blog is not tailored or specific financial advice, rather broad brush ideas that if you want you can take further with a financial adviser.

Lets say you have a 1 year old child whom with over 20 years of education will have school and University fees of £250,000. This is a significant sum of money, a shade over £1,000 per month, every month until they finish University.

Many parents start to consider private education after receiving an inheritance. The difficulty is in knowing whether their inheritance will be adequate. If the money runs out they may not be in a position to carry on funding education from their income.

There are a number of factors to consider, firstly assumptions on the increase in school fees. School fees inflation is brutal, 10 years from now the fees may well be double what they are today.

What is your appetite and tolerance to investment risk. Exposure to either too little risk or too much risk and you may end up with less than you need for your school fees. So it is vital that you understand what investment return you would need in order to achieve your goal.

The smaller the lump sum you have to invest relative to your expected school fees, the higher return you need to meet the expected liability.

You will be in a better position to understand how close you are to achieving your goal by understanding the level of growth you need from your investments.

Given the 20 year time horizon above, a lump sum of approximately 50% to 65% is usually close the what you would need at the start, to cover school fees. By lump sum I mean having cash available of between £125,000 and £162,500.

Growth and income from the investment help to offset the cost of school fees. As the fees increase in the latter years of education the amount you have built up in the early years can cover the extra you need.

In this example the school fees including university total £250,000 and an initial investment of £125,000 covers the cost of all those fees.

Please remember that these figures are illustrative only. Were you to invest money for school fees you will get back more or less than this amount. General investment returns are not guaranteed.

While this is a simple way to demonstrate how you would save possibly 50% of the cost of your school fees many people do not have the luxury of a lump sum and so plan to pay their school fees from income. (regular saving for school fees

It may be that you have a smaller lump sum which you could use for school fees in addition to regular saving. These are just basic options, many more are available.

It is very important to consider every aspect of your circumstances and remember that although  you cannot magic money from thin air through using the tax system, investments and possibly other assets you own you can reduce the impact the cost of private education has on your lifestyle.

Monday, 12 July 2010

The Clue is in the Name

School Fees Planning says it all really. If you are thinking of sending your children to private school it is NEVER too soon to start planning for the school fees.

So often get calls from parents that have tried to manage themselves without any sort of planning. For those that don't know, school fees start off relatively cheap but increase significantly once your children get to senior school, a 70% increase is not uncommon.

Planning ahead can save you one hell of a headache and ultimately go some way to avoid being faced with the decision of maybe having to remove your children from private school.

I am not saying that school fees are a walk in the park, far from it however with some careful forward planning, some discipline, and a reasonable level of disposable income there is no reason why far more parents could not consider private school for their children.

There are plenty of factors effecting the cost of private education; the school, the number of children you have, their academic, music or athletic ability, where in the country you live and the number of years you would like for them to attend private school.

I will talk later about these various elements but as a very very rough guide I would suggest that if you want your little ones to go all the way through from Nursery / Reception, and to include the cost of University then something fairly close to £1,250 per month per child will cover it (based on assumed rate of school fees inflation and University costs).

That said, if you were to start when each child was born a budget much closer to £1,000 could be achievable. The circumstances of each family is different therefore giving rise to the need for formal school fees planning.

The main message is, start early and have a plan, get committed and stay focussed; a good education for your children is well worth the cost so it is worth spending some time planning your finances for the next 10 / 15 / 20 years...