Education is becoming one of the most critical requirements for success in the modern world. At the same time the costs associated with it are increasing at rates significantly above normal inflation.
Paying for one or more children’s education can put a major financial stress on a family. That is why you should start planning and saving as soon as possible.
In South Africa most parents start registering there children at schools just months after they are born. You should start saving at the same time.
To show you the power of excel spreadsheets we have developed a calculator to determine how much you need to put aside to fund your children’s education. In this version we have only catered for 2 children.
Saving for children’s education calculator
While it loads in a new page, read on for the questions you need to answer and what the answers mean.
- First you need to enter the details about your children (we have allowed for 2 here).
- What are there current ages in years?
- How old are they when they start school or the education you are saving for?
- How old will they be when the school/ university or collage ends?
- What is the current cost of education (simplified assumption that this is the same each year so put it a bit higher then the actual starting cost)?
- How much do you already have saved for their education?
- What do you think the inflation is on school education?
- What will your return on the education savings be compared to the school fees inflation (if you think that investments will return less then school inflation then put a negative percentage in)?
In the yellow blocks you will get your provisional results. This is the amount that needs to be saved per month or annually in order to pay off the education. This assumes that you continue to pay the exact same amount over their education life. In the beginning this may seem steep, but in latter years it will be less financially stressful for you.
Not everyone can afford this however. So in the second tab (look at the top of the page) you can start on a lower amount and then annually increase the amount you save as your income increases.
When you click on this page you will need to add the following information
- Note that all the other information is pulled through
- You must specify how much you are willing to increase your savings by each year
- You must specify what you plan to save in the first year (as a start use the number shown on the previous tab)
In a spreadsheet we would be able to goal seek this number but on the webpage you need to find it for yourself.
The aim is to have the ‘Minimum on the Savings Account’ be as close to zero as possible. You can achieve this by changing the total savings per year or the Escalation on savings per year.
Once you have this at a level you are happy with, compare the results shown in the second yellow block between opting for equal installments over the life of children’s education or gradually increasing how much you save for schooling and tertiary education.