If I was a financial adviser I would use my children’s allowance to save for the kid’s education!
Many of us are familiar with the game we used to play which matched items from Column A with corresponding items from Column B.
Well, financial advice is quite similar really. We have to identify events our clients will need money for in their lives, now and in the future, and then match a portion of their income to this event. Simply because unplanned surprises are the enemy of financial advisers!
One of the most common needs our clients have is to address the future costs of their children’s college fees. Capitation fees for undergraduate courses are today costing families €3000 per annum per child. With a 4 year course for 2 children the number required to simply have your children just registered for college is €24,000. This doesn’t take into account accommodation costs, books, travel, food, social life or other course related activities. Even if your kids live at home to reduce this cost, you could still conservatively double the €24,000 on all the other associated costs.
So identifying the event is the easy part. Having the bones of €50,000 for 2 kids to go to college is the hard part.
So what do I, as a financial adviser, do in my house with coincidentally 2 kids?
Well the answer, or at least part of the answer, arrives from the Dept of Social Protection every month. Before we copped on to the fact that we needed this money for a massive future cost, it simply vanished into the household budget to be spent in Smyths or Supervalu or swimming classes, never to be seen again.
If this is what happens to you please ask yourself could you still run your household without spending your children’s allowance on the day to day expenses of running your home.
By simply diverting that money into savings you will go a long way to addressing this future financial need. No surprises.
Let’s quickly look at the numbers. This example goes for any number of children really but let’s stick with 2. Every year this is €3,380. In 15 years of savings this amount you would have €50,400 without earning a cent of interest.
Now this is where we can add some real value. Considering this is a medium to long term goal I believe you should consider using a longer term investment savings account. Even if you earned a modest 3% return after provider charges the amount you would have 15 years would increase to €63,552.
The Revenue would want to tax a bit of the growth but you would still have approx. €8,000 more to spend if you earned a modest rate of return after the government took their pound of flesh.
My point is just this, match part of your income to a future cost. Using child allowance for your children’s education seems like an obvious fit. There are of course a variety of options once you have decided if this is a good thing to do, and this is where we will earn our crust ensuring that you choose the right option for you.
The safety net here is that should you really need this pot of money for something else then that’s ok too. It’s there and available. You decide and you have full control.
If you need any help with planning this, please feel free to get in touch with me directly and I’d be happy to help. Speak with Kathy on 01 531 0571 or email me directly on firstname.lastname@example.org and we can arrange a call.
Good luck with it,