Saving for education? Don’t make these four mistakes.

As a parent, the ability to give your children the best education possible can be seen as one of life’s greatest gifts. It may feel overwhelming at the beginning, but it’s the small financial adjustments that can be the difference between meeting or falling short of your savings goal for your child’s education.  Lets review the four common mistakes when saving for education and how you can avoid similar mistakes while you save for your child’s education. 

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Photo provided by Jason L of aspiringgentleman.com

Change your mindset

The thought of saving enough money for education may seem daunting, causing you to make investment mistakes by not thinking rationally. You may need to shift your mindset and look at saving from a different perspective.

By saving as much as possible, instead of saving the exact amount, or not saving at all, can be one of the best ways to lessen the impact of education fees on your salary as you move forward on this journey.

Below are four common mistakes parents should avoid when saving for education.

Mistake 1: Not doing your homework

Homework isn’t only for learners and students. It should be noted that there are numerous investment services, products, and policies available that can be used to save for your child’s education, but investing without doing any prior research may end up costing you in the long term.

It’s important that you have studied the various available options, compared costs, restrictions, and expected returns so that you can invest confidently. 

Products that are more often than not used for saving for education include endowments, tax-free savings accounts, and unit trusts. Each product has its own set of pros and cons, and so the best product for you should cater to your needs, financial circumstances as well as your investment goal. 

If you may be feeling unsure, speak to an independent financial adviser – he/she can assist you in selecting a product that suits your needs.

Mistake 2: Using your child’s education savings

Life can be unpredictable, and should you find yourself in a tight spot, it may be tempting to use some of the money you’re saving for your child’s education – don’t. The ‘it will be easy to catch up again’ mentality may cost you in the long term. By withdrawing funds, you can’t reap the full rewards of compound interest.

When it comes to saving, time can, more often than not, be your best friend. By starting to save sooner, you can have more time to continue making contributions and benefit from compound interest, which essentially means earning returns today on the returns you earned yesterday.

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Image by Cari Dobbins from Pixabay

Mistake 3: Failing to budget for the long term

According to Statistics, education inflation has been 4% higher than general inflation over the last 15 years. So, it can be worth your while to consider education inflation when planning your budget. 

Mistake 4: Funding education through credit

It’s not unusual for cash-strapped parents using a credit facility to fund their child’s education. Compound interest, in this case, will work against you should you borrow money.

By committing to a long-term savings plan once your child is born, you should be able to fund your child’s education.