We are living in an era where education is very important, it has become difficult to get any work without education. A lot of people don’t budget or save for their children’s education until it’s too late. Saving for a child’s education has become one of the top priorities for South African parents. This is a guide on how to budget for your child’s education in South Africa.
There are different schemes or bursaries that fund education for students who come from a disadvantaged background. However, parents that are part of the middle class have to pay out of their pocket for their kid’s education. This becomes very difficult when the family has more than two children. It results in one child having to stay at home because there is not enough money.
This is something that happens in a lot of families in South Africa. It’s best to budget for your child’s education as early as possible. This will give you enough time to save up for your child’s tertiary education, resulting in less stress. Here are the best ways to save for your child’s education.
1. Tax free savings account
A tax-free savings account is a great way to earn interest and not pay tax. Everyone should utilize them, not only for saving for education but generally. You don’t pay tax on any interest that you earn. There is a lifetime limit of R500 000, this means that you can’t deposit over R500 000 during the course of your life.
R500 000 is enough to fund almost every degree that you can think of in South Africa. You will earn a lot of money in interest; the typical interest rate is around 4%. The overall amount of money that you might have, compounded over a period of more than 18 years might be double. Let’s say you save R3 000 per month, for a period of 14 years at an interest rate of 6.5%. You will end up with just over R800 000. This is enough to put two kids through tertiary school.
2. Mutual Funds
Mutual funds are a great way to save for your children’s education. A mutual fund is an investment vehicle that pools money from different investors. This money is used to buy stocks, bonds and other interesting bearing securities. Mutual funds are very safe, you can earn returns that are around 8 – 10%. Which trumps the returns you would earn from a tax-free savings account.
Another great benefit to mutual funds is that the amount of money you can invest in them is not capped. You might find the R500k limitation a bit too much, you can invest as much as you like with a mutual fund.
Conclusion
It’s important to put your money in assets that protect it against inflation. The inflation rate in South Africa is currently around 4%, don’t invest it in anything that is less than that. This was a guide on how to budget for your child’s education. Do you have any thoughts or questions? Comment below.
