The cost of financing your children’s education is becoming one of the biggest expenses a family has to pay for. Sending your children through school is often the second largest expense after a mortgage for many Australians, so it’s important to plan ahead.
Getting started is the most important part. You don’t need a lot to start investing for your children’s education, and by adding small amounts regularly over time, your initial investment can become significantly larger.
There are several options out there in regards to the way you can invest your money. The one that’s right for you will depend on a number of factors. These options include:
Managed Funds
Managed Funds can be ideal for long-term growth of your savings, and can be started with a small contribution, for example $1,000. The growth of the investments combined with distributed income, can produce a strong return on your investment. Advantages of managed funds include professional advice, a large pool of investment options and easy access to your money.
Investment Bonds (Insurance Bonds)
An insurance bond is a type of life insurance policy, offering a range of investment options for medium to long term investment. Whilst the bond is effected on a life/lives insured, its main purpose is for investment. All investment earnings, including any capital gains, are taxed at 30%, so the use of an insurance bond can be very beneficial to those on a higher Marginal Tax Rate (MRT). They are most effective when held for a period longer than 10 years, as all earnings are tax free.
These are only two of several options available to help save for your children’s education. It’s important to start as soon as possible to take advantage the compounding effect of interest. For example, if a family invested $5,000 in a simple high interest bank account (5% p.a.) on the day their child was born, compared to starting on the child’s fifth birthday, they would have an extra $2,040.97 by the time the child reaches high school.
To get a good understanding of how these and other options will work for you, contact one of our financial advisers and we can discuss what’s right for you.
