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Saving for your child’s education

Finance & Money

Posted on Monday, January 13, 2020

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As a parent, you want to know that your child has the financial resources to get the best education possible. For most, this means building an educational nest egg so that when they leave high school, they have money available to study further.

 

Let’s look at some smart strategies for saving for your child’s education.

 

It can start before birth

 

Baby showers can be a wonderful way to connect with friends and family before you welcome your little one. It’s great to be gifted adorable items for your baby, but how many onesies and soft toys do you really need? Instead, why not give your guests the option to deposit cash into a savings account dedicated to your child’s education. To ensure they know the gesture is appreciated, send a thank-you note acknowledging how their gift will help your child in the future.

 

Carry this tradition forward into later life. You can ask grandparents to deposit a money gift into the account for birthdays as your child grows.

 

Make tax work for you

 

Have you heard of a tax-free allowance? Every individual is allowed to open a tax-free savings account (TFSA) with their bank. Using this account, you’re allowed to save up to R30 000 per year (up to R500 000 in total), totally tax-free. This means you won’t have to pay tax on your interest earnings when you save or withdraw. If you are a family of four, you could save up to R120 000 a year (tax-free) by squirrelling away the cash in a TFSA. The key thing here is that you accrue interest on the savings over time, so you benefit from compound interest.

 

Invest in their education

 

Do you have a financial adviser? If not, it’s time to start working with one to look at your earnings and how your savings can be structured. Investing in a unit trust, for example, doesn’t mean you have to have thousands at your disposal. You can invest a few hundred rands every month, for example. Everyone should have savings slotted into their monthly budget as a priority. Got a bonus? You can deposit a lump sum into your investments. Things looking tight for a while? You can put your deposits on hold or reduce them until things get back on track with your bank balance.

 

Or check out Fundisa. It’s a form of a unit trust funded by the government. You can invest as little as R40 a month, and the state will subsidise a further 25% of what you save every year. (Note: the amount is capped.)

 

Turn it into a learning moment

 

Financial advisers agree that one of the most important gifts you can give your kids is the knowledge of how to budget and save. Instead of letting them blow their pocket money on sweets and items they don’t really need, start teaching them how saving a portion of their “income” can see it grow into a substantial amount over time. Another idea is to offer to match whatever they save every month, and then invest it in their education savings or investment facilities.

 

Get yourself a side hustle

 

Do you have a hobby or skills you could transform into an alternative income? Selling your creative goods on crafts-based websites such as etsy.com, or even selling your wares on Facebook Marketplace, could quickly bring in extra cash that you can ring-fence for your child’s education. Even better, make it a family affair. Get your kids involved in the side hustle, letting them know that the income will be saved for their education. Think of it like this: you get to bond while you save.

 

The information contained in this article is for information purposes only and does not constitute professional advice.

 

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