Do you have young children? Have you imagined what it will take to pay Private High School fees for between 6 and 13 years?
Our eldest child is in a lovely primary school, with his sister set to join him next year. Like many parents in a capital city, contemplating private high school, we have already spent hundreds if not thousands of dollars just on enrolments; hedging our bets amongst a number of preferred private schools.
This feels like wasted money, but let’s face it a couple of hundred dollars once off is far easier to afford than the prospect of between $10,000 and $25,000 per annum, per child. And that’s in today’s dollars. An article in the Australian Financial Review earlier this year outlined that private school fees are growing at up to twice the rate of inflation (much faster than wage growth).
Based only on inflation the $10,000 to $20,000 price range per annum today could be $23,000 to $59,000 per year per child in just 10 years. It is reported in the AFR article that a child born in 2016 would on average cost $360,044 to put through private secondary school
Will you be able to pay for this from your salary? How much debt will you go into to put your children through high school?
There is another way… Something that not everyone is aware of.
Imagine being able to save a little each month and have it invested in a range of options from term deposits to shares. Imagine that the investment does not affect your personal tax at all, and after 10 years can be redeemed in full with no capital gains.
It is a two step strategy:
Step 1. Out of Sight, Out of Mind
By setting up this strategy, the money saved is put in an investment that shouldn’t be touched and is largely out of sight. By removing the temptation of these savings sitting in an offset, or simple bank savings account, this step significantly reduces the likelihood these savings will get spent on something else.
Step 2. Tax Effective
If you were to invest these savings in your name in a share, a managed fund or even a term deposit any earnings or growth would be attached to your taxable income. This adds complexity to your tax affairs and reduces the impact of the saving.
If you are on a marginal tax rate of greater than 30%, using this strategy will add to your savings on every dollar your investment earns. In addition, after 10 years, the savings can be withdrawn with no capital gains tax to pay.
With a small investment of $2000 initially, and $200 a month we would expect to save over $2,500 in tax, and receive the proceeds Capital Gains Tax free after 10 years.
If this sounds like something that will help you save for your children’s future, without costing you an arm and 2 legs, then please see a financial planner and discuss your individual options and ask about Insurance Bonds.
John Forwood is the principal adviser at Forwood Planning and is an authorised representative of MyPlanner Australia Pty Ltd.
Assumption: CPI = 3%
John Forwood and Forwood Planning Pty Ltd ATF Forwood Planning Trust are Authorised Representatives (No. 1007813/1238510) of MyPlanner Australia Pty Ltd AFSL 345905.
The information provided above is general in nature and does not constitute financial advice. Every effort has been made to ensure that the information provided is accurate. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult a financial planner to take into account your particular investment objectives, financial situation and individual needs.