Monday, 11 November 2019

How to save for private school fees



Picking the right school for your child is not easy and from personal experience, you'll have plenty of sleepless nights asking the same questions over and over again. 

Will they be happy? What did the latest Ofsted report say? Are we in the ridiculously small catchment area? 

One decision you may have to make is whether or not to go down the private route. 

Private school may not be for everyone (and isn't an option either of us went for) but if it's right for you, saving early is crucial.

Here, investment expert and mum of two Sam Slator shares her top tips on saving for private school fees.

Over to Sam... 

After buying your home, having a child may be the single largest expense you undertake in your lifetime.

According to recent figures from Loughborough University’s Centre for Research in Social Policy, raising a child from birth until the age of 18 will cost £150,753. Yes, that’s right. £150,753. Money that could otherwise be spent on half a house, or a really nice Porsche. Just saying...

The costs could almost double if you are considering private education and could make it seem an unachievable goal. But the good news is if you plan ahead, it can be a done. The key is to start saving as soon as possible.

How can I find the money???
I know, I know, after paying the child-minder, the mortgage, buying food and clothes, there’s not much left. But it’s generally possible to cut down on something.

You could save £3 a day not buying a coffee, save money on the weekly shop by buying online and avoiding unneeded temptations (like ice cream, chocolate and the three for the price of four whatever at the end of the aisle), drink one less glass of wine on a Friday… OK that last one may be above and beyond, but you get the picture. And, as Tesco tells us, every little helps.

Another good way of ‘finding’ even more extra cash is to start investing the money you would otherwise ‘save’ when your little one turns three and is eligible for 15 or 30 free hours. 

That could be as much as £10,000 a year.

Whether you can you save £50 a month or a £1,000 a month – it can still add up if you start early enough.

What should I save in?

Cash savings are one option, but I’d argue not the best way at the moment as interest rates are still really low, so your saving’s won’t grow much. For example, if you put £5,000 in a cash account paying 1% per annum, you’ll only have £5,050 a year later. 

So unless your child is within 2-3 years of going to private school, you probably need to look at higher risk investments to hopefully make better returns over the longer term.

Investment funds

You could invest in the shares of a company. But then your fortunes are reliant on that one business doing well. For most of us it’s probably better to invest in a fund instead. A fund will pool our money together and buy shares in lots of different companies. Funds can also in vest in bonds, property, commodities… all sorts of things. To find out more, have a little look at www.fundcalibre.com.

When investing in funds it is important to understand the time horizon you have to invest, as well as your own personal risk tolerances. 

The longer you have before you need to access the pot of money, the more risk you can afford to take. As you get closer to the date when you need the money, you can move it into less risky investments so that should stock markets fall, you won't find you are short on the sums required.

To give you an idea as to how much you could save, if you invest £700 per month for 10 years, assuming an annual growth of 5% after charges, you will have accumulated a pot of £108,697 – enough to pay for private education at secondary school. 

Of course, you can then take the fees out each term and keep the remainder invested - although it's probably a good idea at this point to keep two years worth of fees in cash as your safety net. Some schools also offer a 'fee-in-advance' scheme, which gives you a discount.

Other options

Bursaries and Scholarships

If you really have already maxed out on what you can afford to save, bursars, grants and scholarships are another option. They aren’t as plentiful as they used to be, but it is worth looking to see if your child could be eligible.

Children who shine in sports, academia, music or art are generally considered for scholarships, while grants and bursaries are generally means-tested. Schools may also reserve awards for children whose parents are in the Armed Forces, clergy or the teaching profession. www.theschoolrun.com has more information on this.

Borrowing

If you've left things until the last minute then really the only options are to take the money out of your monthly salary and cut down on your outgoings, and/or borrow.

Personal loans are one option (please stay away from expensive pay-day loans though and look at a longer-term loan from a bank – it’ll save you a fortune in repayments) but it is not uncommon for parents to use offset mortgages or even re-mortgage their homes in order to pay for private education. With today's low mortgage rates, this may be a cheaper option than getting a loan.

However, you will pay interest on any type of loan or mortgage, which means you will be paying a higher amount in the long term. It also means you’ll probably be working longer to pay off larger debts. 

Grandparents
The final option is to once again return to the bank of Mum and Dad. They’ve probably helped you out in the past, so maybe they’ll help again with their grandchildren. If they are happy to do so it is worth pointing out the inheritance tax benefits (although it could be a slightly awkward conversation). They could, for example, use their annual gift exemption of £3,000.

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Sam’s views are her own and do not constitute financial advice






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