How can you build your child’s education fund despite the high cost of living and inflation? This is the biggest question of many Filipino parents. You know that your kids need skills and credentials to succeed in a very competitive and rapidly evolving world, but it’s also hard to save money while paying for household expenses. How can you afford the cost of education, when grocery bills already stress you out?
We have your battle plan. Here’s how to build your child’s education fund, from when to start saving for your child’s education to five simple steps for planning and achieving your goals.
When should I start my child's education fund?
The short answer? As soon as possible. The earlier you start, the easier it will be to raise money for your child’s education. You can even start a college fund soon after your baby is born, which gives you around 15 years to reach your target amount. This offers numerous advantages:
- You can smart small. Saving money for education can be challenging when you’re paying for bills, groceries and other household expenses. But since you have more time, you can afford to set aside smaller amounts – and your savings can even earn compound interest.
- You have more options. You can open a time deposit account, get a college education plan, invest in stocks or mutual funds, or get a life insurance plan that doubles as an investment.
- You teach a valuable life lesson. Your child grows up seeing how much you value education and save for an important goal. This is a great way to role-model both a love for learning and financial responsibility.
Now that you’re ready to start building an education fund, you just need clear goals and a system for saving money and monitoring your progress –and this step-by-step guide can help.
Step 1: Know the cost of college education in the Philippines
Any financial goal — whether it concerns your child’s education fund or your retirement fund — needs a concrete target amount. It helps you calculate how much you need to save monthly and annually, and gauge if you’re on track.
- Get the figures. Make a list of your target schools, and then research on their tuition fees.
- Factor in inflation rate. Anticipate that tuition fees will increase 10 to 12 per cent per year. Use these figures and your child’s current age to estimate the cost of education by the time he or she is ready to go to college. You can also use online calculators to get the Future Value, or the cost of an asset based on its assumed rate of growth.
- Consider miscellaneous expenses. If your dream university is in another city or province, you may also want to research on dormitory fees and other related expenses.
Step 2: Create a savings strategy
Saving money for education is a gradual process that becomes easier with a well-thought-out plan.
- Calculate your total income. A significant portion will come from your work or business earnings. However, you can also create other income streams like a small home-based business.
- Apply the 80-20 rule to your household budget. Use 80% percent of your income for household expenses (or roughly 50% for needs and 30% for wants) and then set aside 20% for savings. So you’re not tempted to overspend, once you receive your salary, transfer your desired savings immediately to a separate savings account.
- Earmark “extra” income for your education fund. Save bonuses, commissions and any money earned from freelance jobs or side hustles. You can also add any cash gifts your child receives during birthdays or holidays.
- Set milestones. The cost of education can be overwhelming, especially if you have more than one child. Break down your savings goals into mini targets or short-term goals, i.e. ₱100,000 by Year 1. You can adjust your targets if your income increases or if other life factors come into play.
Step 3: Create a financial safety net
"Life is what happens when you’re making other plans.” Your savings strategy may be affected by unexpected challenges like a sudden income change or large expenses like medical bills.
While you can’t prevent all problems, you can protect your finances and your child’s education fund with a financial safety net.
First, create a “Rainy Day Fund” that covers at least three months of your household expenses in case your income is interrupted. This allows you to keep your tuition fund intact, no matter what happens.
Second, consider getting a health insurance plan for hospitalization or other medical expenses. Some plans also double as investment and can become another source of funds in the future.
If you want to build a financial safety net, get in touch with reputable companies like BPI AIA. You can choose from different tools for saving, protection and insurance with investment.
