Preparing for your child's education

Do you have kids? or planning to have one in the future? If yes, have you considered the cost of their education? I mean, I think everyone has thought of it but have you actually tried quantifying its cost? I found myself asking that question one day and this led me to formulate a table for the education expense. I used a mid-level school tuition fee as basis for the cost with a yearly increment of 10%. It is fairly a simple assumption and this gave me an idea on the amount that I need to prepare for my kids.

Here is the table that I made.

Looking at the numbers of the tuition alone already made me cringe and I intentionally didn’t include the miscellaneous fees. I also browsed thru the 2006 report of the expenditures on children by families and found out that 10% of the total expenditure for raising a child goes to education. Maybe it is fair to say that we really need to plan for it.

I think most of us prepare for this expense thru savings. Some funding come from OFW’s abroad which explains why the country has an influx of dollars just before the enrollment season.

Another way for preparing is thru pre-need educational plans. However, I wonder how many Filipino’s still trust pre-need plans? The loss of confidence was stemmed by the pre-need industry collapse which led many to abandon the idea of obtaining one.

I'm glad that Congress (thru House Bill No. 4343) is doing its part in preventing further bust of the pre-need industry. Hopefully, this will provide the control and safety net not only to the pre-need companies but more importantly the plan holder.

I have several educational plans for my kids and I’m fortunate that I chose a pre-need company that had the stability to withstand the crisis. I believe that every buyer bears the responsibility to check if the pre-need company has the ability to provide what is stated in the contract. Remember, you are parting your cash with nothing tangible to hold on to except for their promise of delivering the benefits in the future.

Here’s another tip, whenever the sales agent presents you with an illustration of the plan, do not take the figures on face value. Most of the time, the presentation material highlights figures that are already summed up which makes it look astonishing. Take time to compute for the total cost and compare it with the benefit. The yield will give you the total interest for the plan. You may want to further divide it to obtain the annual rate and see if it falls with your target return. If it meets your criteria, then you probably met a match.

I computed the returns for the educational plans and realized that I will earn an interest of 4.5% per annum for the entire coverage. When I got the plan, I wasn’t particular with the returns for that matter. I just want to ensure that I have at least something for my kids the moment they are bound for school. If I were to make that decision today, I’ll probably ditch getting those educational plans. Those plans will provide me with a return but I still think that I can beat the interest that it offers. I will instead put my money on other investment instruments which can yield me more.

Regardless of the way, the preparation for education expense must be part of everyone’s financial discipline. Not obtaining a pre-need plan spares you the hassle from the amortization. However, it does not give you an excuse to enjoy that money today. It becomes more relevant that you should save more in an effort to reach that goal by getting a higher return rate on a shorter period of time. Just remember that at the end of the day, it’s your children who will benefit from all of this.

Can you afford it?

August, being perennially a wet month, is a lean season for retailers. This is why big malls schedule their mid-year sale at this period hoping to draw consumers to spend. The red-tag retailing has evolved making the 3 Day Sale a regular event on their calendar dates. These “SALE” events are tied up with credit making it convenient for consumers to purchase pricey items by means of installment.

One of my personal favorite “SALE” is the appliance and gadget madness. I can’t resist the urge of checking out the latest toys in the market. I also noticed that pricing of these products is critical since most of these items are identical in specification. Price seems to be a major differentiator.

During the sale period, the hook line and sinker for spending spree occurs. Money Tree suggests that before you splurge and burn your money, find time to think and rethink your position. Often many are led into an illusion that the item they buy is cheaper than what it actually is. How? Expensive items are often disguised and repackaged as “affordable”. Marketing geniuses mask the amount by subtly dividing it into monthly or even daily cost. A P100,000 television is expensive and will surely shun a buyer. But present the same cost on a per day basis (roughly around 277 pesos per day) and you’ll have many Juan’s lining up to purchase that tv set.

Be careful. This “affordable” purchase scheme will often be used to lure you to give in to your “wants” list. There’s always an instant justification to the action saying that the purchase is a steal with only a few hundred pesos per day to throw away. Reaching out for the credit card seems to be effortless and convenient. There is no feeling of guilt when you swipe that credit card and you go home happy with your new set of goodies.

Again, this type of spending causes a false sense of purchasing power. It makes you believe that you can actually buy more than what you can afford. Rule No. 6 in CNN’s Money 101 says:

“Spending beyond your limits is dangerous. But if you do, you’ve got plenty of company. Government figures show that many households with total income of $50,000 or less are spending more than they bring in. This doesn’t make you an automatic candidate for bankruptcy — but it’s definitely a sign you need to make some serious spending cuts.”

More often, happiness derived from this type of purchase is short-lived and it abruptly ends once the credit card bill arrives. It makes you realize that the “affordable” purchase you made is much more significant when it sits on top of your regular needs purchase. As you continue to touch base with reality, you find out that there is actually no additional income to support for the added expense of your new toy. It is a start of a financial horror story and you find yourself sinking on debt.

This is not a pretty site and one must be avoided at all times. I’m not against the purchase of the goods that we crave for. The key phrase is “planning the purchase”. I will not hesitate spending a fortune buying things that I like provided that this was planned beforehand.

So, remember, whenever you are verge of impulse buying … think … the price tag always more than meets the eye.

Where did my money go?

Do you wonder where your pay check went? I have a strong perception before that money just passes thru the palm of my hands. Back then, I already have control of my finances. Yet I find myself clueless on where my money goes. That is until I forced myself to list everything that I spent for.

We often call that action as budgeting. For some reason, this word has an allergic effect to many. Let us see how Wikipedia define the term budget:

“Budget generally refers to a list of all planned expenses and revenues”

Since my spending habits is not dictated by any plans and are spontaneous in nature, then it is not budgeting but purely recording. Yet, it has served its purpose. I found the process useful and the list on my old reliable notebook just got longer

As simple as it is, the process is nevertheless time consuming. There is a conscious effort on my part to rewind what transpired the whole day. I made some memory checkpoints during the times that I reached for my wallet. The list practically has everything on it, from the banana que that I bought in the carinderia to the appliance I bought at the mall.

Years passed by and slowly the record eventually just got better. I categorized each of the line item to determine what type of expenses I am heavy on. I also inserted an income tab to lists all the money going in. This two combined, gave me my net worth which I use as gauge for my personal financial health.

I was so happy with this financial tool, that I even shared the template to my friends. That is when I found out that expense tracking is not for all. Some actually tried it, but sooner or later gave up. As Salve from Money Smarts says:

“ As you well know, I don’t like budgets. Just thinking about them makes me wince. I have tried, but really, I cannot pretend that I already have the hang of it. Just can’t.

I simply figure out how much I should save and invest, then spend the rest. That’s it. I enjoy the moolah. Let the money chips fall where they may. I can smile while forking over money at the restaurant because I know the purse strings keeping the savings fund are tightly shut “.

I learned that budgeting and expense recording has its own personality. Each person has his way of taking care of his money. It all goes down to the basic fact that (no matter how you do it) financial discipline to save is the ultimate goal.

Oh yes, discipline is always a tough task but once you have it then you’re made.