By Thomas Zhuo
You know how difficult it was shouldering a study loan. When you first started work, those monthly repayments ate up a big portion of your meager salary. It made it harder to save for other goals like a house, a car and of course, children.
So it's perfectly understandable that you want to give your child the head start you did not have by saving up for his or her university education fund.
Or maybe you were fortunate enough to have your parents pay for your tertiary education. And now, you want to pay it forward by giving your child the same advantage that you had.
Here are 10 smart tips that you cannot do without to help you with that ambitious and worthy goal of yours!
Tip 1: Find Out How Much You Need
For a Singaporean enrolling into National University of Singapore (NUS) this year, the annual tuition fee would amount to $8,050¹ if he or she intends to become an engineer. Besides being one of the least costly undergraduate programs, the undergraduate can also look forward to a $4,000 starting salary upon graduation!
Well, I digress. Back to finding out the fees.
Including other miscellaneous expenses over a period of four years, it would probably cost this Singaporean around $40,000 to graduate from the Engineering faculty. However, due to ….*drumroll*… INFLATION, this is unlikely the fee your child will be looking at in the future.
If you do a comparison against five years ago, tuition fees have increased from $7,170² to $8,050. That's an increase of 12 per cent. Using this number as a guide, it would probably take around $50,000 to fund your child's university education fund if your child is around 10 years old this year and $60,000 if he or she is below five years old.
Knowing how much you need to save, the steps to achieve the goal become much clearer.
Tip 2: Start Early
If you are carrying a toddler in your arms and reading this, please do not be disappointed that you would have to pay an additional $10,000 just because she's enrolling into university 5 years later than another child.
|Age of Child||University Fund||No. of Years to Save||Amount to Save Each Year|
In fact, it's an advantage since you have a longer runway to save up for your children's university education! Looking at the table above, if you have 15 years to save $60,000, you only need to save $4,000 a year as compared to another parent who has to save $5,000 a year if the child is older.
Therefore, to make it easier to attain the goal of funding your children's university education, start saving as early as possible, which is TODAY!
Tip 3: Save A Little Every Day
Saving $4,000 in a year might seem a daunting prospect. However, if you break it up into 12 months, it's just slightly more than $300 a month. Over 52 weeks, it just means putting aside LESS THAN $80 every week.
Just deposit a $5 or $10 note into the piggy bank along with your loose change every day and you have a good chance of accumulating $4,000 by the end of the year!
Tip 4: Cut Down On Discretionary Spending That Adds Little Value To Your Life
The likelihood is that you do not track your expenses and at the end of the week, you would be astonished that you have actually spent more than a hundred bucks on discretionary items ranging from eating out and mobile phone accessories to coffee and snacks. Stuff that add little to no value to your life.
Instead of spending three nights out eating at restaurants, why not reduce it to two? Cook at home for a cosier, healthier and of course, cheaper meal. Otherwise, it could be cutting back on unhealthy sugary snacks and beverages at the office, or taking the bus or train more often as compared to grabbing a taxi.
That $80 saved a week will ensure that your child graduates debt-free!
Tip 5: Invest For Higher Returns
What if I told you that you don't even need to save $4,000 a year to sponsor a child's university expenses?! In fact, $3,000 might just suffice. That's just $250 a month and less than $10 a day.
Up till now, I have ignored the fact that the money you have saved could actually work harder for you. If you are able to achieve a 5 per cent annual return on the amount of money that you have kept aside as university education funds, saving $3,000 a year would result in a portfolio worth $65,000 at the end of 15 years.
Investing in the Straits Times Index (STI) ETF, a fund that tracks the top 30 biggest companies in Singapore (including stable bluechips like Singtel, DBS Bank and Singapore Press Holdings), has historically returned ~7 per cent per annum for investors. Since we only require ~5 per cent, you could even have one-third of the savings in stable bonds like the Singapore Saving Bonds to reduce potential portfolio volatility.
Tip 6: Purchase An Endowment Plan
I can perfectly understand if you're more risk averse and that a DIY approach to investing is not exactly suitable for you. You prefer to outsource and that's where an endowment plan might come in.
With a high likelihood of a 3 per cent overall annual return, saving $300 per month should help ensure a policy value of at least $60,000 when the policy matures in 15 years' time.
Tip 7: Sock Away Your Bonuses
Saving consistently might prove to be challenging for you. You are the kind who likes to set aside the $3,000 to $4,000 needed at the start of the year and be left alone to spend your money with total freedom.
But where are you going to get your hands on a few thousand bucks?
From the year-end bonus or the performance bonuses issued out at the start of the year.
Saving for your child's university education will be made a lot easier if you sock away a portion of your bonuses.
Tip 8: Buy A More Affordable Home
Due to certain circumstances, I can empathise that it is indeed difficult or maybe even impossible to save an additional $300 a month for each child. For instance, if you have four kids, that would mean a need to put aside $1,200 every month or more than $10,000 each year, which is a tall order indeed.
And this is where this tip comes in. Let me explain before you start scratching your head as to how buying a more affordable home has anything to with saving up for your child's tuition fees. Especially since your mortgage payments are all paid with your CPF.
If you buy a more affordable home with a lower mortgage loan, the monthly mortgage payment would be smaller. There would be more left in your CPF Ordinary Account (OA) to accumulate and grow with time.
When your children are enrolling into university, you can actually tap on the CPF Education Scheme which allows you to use your OA savings to pay for your children's tuition fees.
Tip 9: Maximise the Child Development Account
The Child Development Account (CDA) is a special savings account for your child. Besides a one-off grant of $3,000, the government provides dollar-for-dollar matching when you top up your child's CDA. In fact, the government provides up to $18,000 of CDA benefits for your child.
When your child turns 13, if there are funds remaining in the CDA, it will be rolled over to the Post-Secondary Education Account (PSEA). And yes, funds from the PSEA can be used to pay for his or her university tuition fees. In fact, if the bulk of CDA funds are rolled over, more than 50 per cent of tuition fees could be covered!
So maximise your child's CDA account today. The 2 per cent interest rate currently provided by our local banks for this account makes this option even more attractive.
Tip 10: Embracing A Few Tips Goes A Long Way
I will be the first to admit that I am unlikely to pursue all the nine smart tips I have described above. Well, not surprisingly, since some of them are actually alternatives to each other.
At the same time, I am also quite certain that if you only adopt just one of the tips above, you will be making it unnecessarily harder in achieving the goal of funding your child's education. The journey would be made so much easier if you embrace at least a few of these tips.
For example, if you start early, sock a big portion of your bonuses and invest these savings at returns of ~5 per cent, there is a good chance you might even be saving enough for two or three children's university expenses!
Lastly, all the best in saving up for your child's university education fund!
¹ This figure is based on enrolment to the Engineering Faculty in AY 2016/2017.
² This figure is based on enrolment to the Engineering Faculty in AY 2011/2012.
This article first appeared on Singapore Motherhood.