My mobile phone sounded.
“Mummy and Baby are safe. Arrived at 4.27am. At Mount Alvernia. Room 306A.”
Whenever a new addition comes into our family, after the first few weeks of initial emotional high, reality starts to set in. How can we really afford the educational cost and living expenses?
Many parents choose to ignore the future and focus on the current issue at hand. However, the need to pay for education is not an issue of ‘If‘ but a matter of ‘WHEN‘.
Let us take a look at the expected education cost for a 4 year Business Program:
(Source: Cost of basic business degree in Singapore. (www.nus.edu.sg), Cost of basic business degree in UK, US and Australia (TODAY, 4 October 2005), myCPF http://mycpf.cpf.gov.sg/CPF/my-cpf/have-child/HC5.htm)
| SGD $ | Singapore | Australia | USA | UK |
| Tuition Fees | $24,440 | $144,000 | $196,000 | $180,000 |
| Living Cost | $33,000 | $75,400 | $92,800 | $84,000 |
| Total Cost | $57,740 | $219,400 | $288,800 | $264,000 |
Let us assume an inflation rate of just 3% annually for the next 18 years
| SGD $ | Singapore | Australia | USA | UK |
| Tuition Fees | $24,440 | $144,000 | $196,000 | $180,000 |
| Tuition Fees inflation | $41,604 | $245,150 | $333,676 | $306,438 |
| Living Cost | $33,000 | $75,400 | $92,800 | 84,000 |
| Living Cost inflation | $56,180 | $128,363 | $157,985 | $143,004 |
| Total Cost @ inflation | $97,784 | $373,513 | $491,661 | $449,442 |
Mission Possible
Parents tend to either believe that they can make a better investment decision by investing randomly or they suffer from a disease call, “We-Always-Have-Time” syndrome. We tend to ignore the real need to plan for it since it is still far away.
Options for parents:
1) Endowment Plan
2) Investment through shares
3) Bank deposit
4) Mutual funds
Strategies
Whatever your options are, the key word is “EARLY”. Be it in investment, being early means that you have the advantage of time to smooth out your investment fluctuations.
Dollar Cost Average. “Time the market.” Nobody will able to forecast how the market will be. “Time in the Market” is a better strategy. By dollar cost averaging, it allows you to reduce your risk exposure and the need to constantly be bugged by the market Ups and downs.
Use Compound Interest. Imagine if you can set aside $200 per month for the next 18 years with 5% per annum return you can get a Whopping return of $76,670! If you choose to set aside in a bank deposit, the longer you save, the lesser you need for you to set aside. Be it in an endowment plan, compound interest will also work to your advantage.
So Start Planning! When? NOW!
About the Author
Kevin Foo is currently serving as a Manager, building his Wealth Management practice with a Canadian based company. He can be reached by kevin_foo@hotmail.com.
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