Having a proper education is vitally important if you want to get a high powered career and good pay to go with it, especially since competition is fiercer than ever and high class industries and firms will only take the best of the best. It might seem like an overwhelming task when it comes to saving for your child’s education, but the earlier you start, the less you have to put away each pay check before you reach your goals. Add in a decent interest rate on your savings and you can have full degrees paid for with minimal effort.
How Much Should You Save?
The first thing you need to consider before starting to save for your child’s education is how much you actually need to save up. Different colleges can vary widely in price as well as the actual course your children might be taking. Going to school for a bachelor’s degree will typically cost much less than going to school for a Master’s Degree. Going to university over going to college will greatly affect the total price as well. Your best bet is to save up enough money for 4 years of post-secondary schooling in a basic educational institution. This way, there is some flexibility if your children end up receiving scholarships or want to upgrade their education later, at least you have the basic amount down; you can always add in more later or transfer funds around in your financial portfolio if you have saved too much.
So how much does a basic four year program cost? Tuition fees, textbooks, room and board can range from $5,000 a year to over $50,000 a year for universities. Colleges are typically much cheaper. If you’re thinking about saving for your child’s education, a safe bet would be to save $20,000. This allows a $5,000 budget per year for a period of 4 years. This way, you have your bases covered and you can always add more to it later on if your child gets into a highly prestigious post-secondary school. Make sure you save this amount up per child; you don’t want to be put in the uncomfortable position of compromising one child’s education for the sake of your other child’s education. While thеrе іѕ nо magic formula fоr saving fоr уоur child’s college education, уоu саn afford іt іf уоu plan ahead, set long-term goals аnd work wіth а financial expert tо stay оn track. Yоur child’s future іѕ wеll worth it.
Choosing the Right RESP
It’s very easy to open up an RESP. All you have to do is have a social insurance number (SIN) and choose an RESP provider. A Registered Education Savings Plan can stay open for up to 35 years so it’s highly important to choose the right RESP provider; know exactly what you’re getting into before you sign up for anything. Different RESP providers have different benefits and drawbacks so it’s important to ask a series of questions to make sure you get the one tailored to suit your needs. Some questions you should be asking include:
- Once I have opened an RESP, will I have to pay any fees? If so, what are they for and how much will I have to pay?
- Do I have to put a minimum amount of money into an RESP?
- Do I have to make regular payments?
- What happens if I can’t make regular payments?
- What are my investment choices? What are the benefits of each choice? Can the value of my investment go down?
- Can I withdraw money if I need it? Are there any fees or penalties for withdrawing money early?
- Can I transfer the RESP to another person, or to another RESP provider? What is the cost to transfer?
- What will happen to my savings in the RESP if my child does not continue his or her education after high school?
- Does the RESP provider limit the types of qualified educational programs that I can use my RESP for?
- What happens if I close my RESP early?
- What if my child decides to go to school part-time?
- Does the RESP provider offer all education savings incentives, including the additional Canada Education Savings Grant and Canada Learning Bond?
http://www.canlearn.ca/eng/saving/resp/questions.shtml
When Should I Start Saving?
Once you’ve chosen your RESP provider and opened up your RESP, when should you start saving for your child’s education? The answer to this is, as early as possible. The earlier you start saving for post-secondary school, the less money you’ll have to put in each month in order to reach your goal of $20,000 (or whatever number you have chosen). You should also remember that the longer you are saving in an RESP, the longer the interest has to accumulate over the years and this can add up as well. Especially since inflation can rise tremendously over the years, you have to be prepared that post-secondary tuition fees could very well be as high as twice the cost they are now, if not more. So why not get a head start and save for your child’s education early on?
For example, let’s say that you chose an RESP provider with an interest rate of 11% annually. If you put in $5,000 each year when your child is only 10 years old, you will have a total savings amount of $65,000 by the time they are 18 years old and ready for university, even though the amount of money that you invested is only $40,000. This is the power of compound interest so try to opt for an RESP provider with a high interest rate, but be sure you start as early as possible (ideally, even earlier than 10 years old) in order to reap the maximum benefits offered. For example, if you put away only $3,000 per year as soon as your child is born (with an interest rate of 11%), you would have a grand total of over $148,000 by the time they hit 18. What’s more, the amount of money you would have invested yourself is only $51,000!
As you can clearly see, there is no concrete answer when it comes to how early you should start saving; just try to start saving as early as you can to get the most money possible.
What to Do If Your Child Doesn’t End Up Going to a Post-Secondary Institution
The first thing you don’t want to do is immediately transfer the funds; many students take a year off and may very well end up going to further their education after a year or two so avoid any drastic action right away. Remember, RESP can stay open for 35 years. If it turns out that they will not be attending college or university, even after a year or two, you can always transfer the money in your RESP to another one of your children instead. If you don’t wish to do that or if you only have one child, you can always transfer the money over to your RRSP, if you have one. You can also simply withdraw the money from you RESP, however, you would end up paying tax on any interest earned as a result. With different RESP providers, there are different rules and regulations for making transfers and withdrawals so be sure to read over the fine print so you know what you can and can’t do in the future and make sure you don’t have to pay any extra fees or penalties.
Conclusion
Saving for college can take many years of planning, preparation and consistency so the best thing to do is to start thinking about it as early as possible and stick with a set plan to keep you going through these years. It may seem rather daunting at first but this can become very easy and manageable with just a bit of practice. A good idea is to ask for contributions from family members instead of certain gifts, or the parents may want to add in the same amount to the RESP per week that matches their child’s allowance. This isn’t a lot, but this sure can add up over the years. There are many little steps you can take that will add up in the big picture.
The image used in this post is taken from Image: Paul Gooddy / FreeDigitalPhotos.net
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