This is Part 8 of a continuing 12-part series on financial planning. One of the happiest moments of their lives was finally realised with the arrival of their first-born child, baby Alisa. This week, we’ll be looking at another important planning issue for most parents: children’s education funding.
After Adam settled the hospital bills, it was time to take baby Alisa home. The bill came close to RM5000 but it’s a “necessary” and budgeted expense. Adam and Aida had to make quite a lot of adjustments with the arrival of baby Alisa. It was physically exhausting but well worth it and he enjoyed every moment of it.
Adam finally had some time for himself and took the opportunity to review his family budget. He should start saving for his little daughter’s education as soon as possible.
Take-home PayAdam 5,000Aida 4,000
Life Insurance PremiumAdam 400Aida 300
Repayment of PTPTN Loan
Quit Rent, Assessment & Ins.
Gift to Parents (Both)
Petrol & Toll
Car Maintenance, Road Tax & Insurance
Clothing & Entertainment
Baby’s Expenses (diapers, formula etc)
Balance of Income
Note: Take-home pay is net of EPF & SOCSO contributions and taxes.
With the revised budget, it looks like he has about RM1000 per month that he can save for his daughter’s education. Besides having opened the normal children’s savings account in the bank, Adam wanted to start Alisa off on an insurance programme as soon as possible because the premiums are cheaper. So, he got her covered for life and medical insurance with some savings element for a total premium of RM200 per month. He also made an initial investment of RM1000 in a unit trust fund and committed a further RM200 per month into a regular investment plan of the same fund. He estimated that if he can consistently get a return of 8% p.a. over the next 18 years, he should have accumulated about RM100,000 for her education fund. In addition, he will be putting another RM200 per month into the Amanah Saham Bumiputera (ASB) which should give him another RM100,000.
To maximize the tax relief, he also made an initial deposit of RM3000 into the Skim Simpanan Pendidikan Nasional (SSPN), a scheme introduced by the National Higher Education Fund Corporation (PTPTN) which puts emphasis on ‘Savings towards Higher Education’. SSPN provides annual dividend returns and financial incentives in the form of Matching Grants especially for low income depositors.
Saving for our children’s education need not be every parent’s nightmare if we can EDUCATE ourselves on the following principles:
Start Early. This allows the power of compound interest to work better for you. Most of the time, it is not how high a return you can get (of course, that helps!) but how long you save and remain saved that matters most.
Stay Disciplined. Very often, our immediate wants (upgrading to a bigger car) would take precedence over our longer term needs (children’s education). Remain focused and disciplined to achieve a long-term goal.
Utilize Various Instruments. “Don’t put all your eggs in one basket!” Diversify to spread out investment risk.
Save Consistently. Do not give ourselves excuses for skipping a month or two’s savings. Enrol into an automatic savings programme.
Assess Your Needs. Keep yourself on track with your financial goals. Constantly keep yourself up to date with the latest education costs as they generally rise each year, not forgetting the currency fluctuations as well.
Think Positive. The task may be daunting but do not underestimate your ability. If we’ve done our best, we should leave the rest to God.
Set Reasonable Expectations. Talk to your children pertaining to the family’s finances and set reasonable expectations with them. If it takes too much to save up in order to send them overseas, tell them earlier that they’ll have to study hard to obtain a scholarship.
Sometimes the best education in life need not cost an arm and a leg. The best education parents can provide for their children may be found at home, that is, by being good role models and by practising what they preach. No amount of money can substitute our role and responsibility as parents to educate our children well. This is priceless!