I can remember my dad telling me to study so I didn’t end up working in a factory like him. Now there’s nothing wrong with working in a factory, but who still wants to do that at 65?
I also remember plain as daylight, telling him I didn’t need the education because I was “going to make things happen”.
Ja well, I’ve lived to regret those words.
You see, my dad was talking from personal experience – something I didn’t have at the time.
Since then I’ve had the privilege of advising several high income people – from managers earning R140, 000 a month as we speak to advocates earning R350, 000 a month as far back as 2003.
So when I look at my son I think two things:
- He needs the best teachers with the least number of students per class. That’s so he can get enough attention if he struggles with things like maths.
- He needs to do well at maths or science or else his career options halve. No more pilot, doctor, engineer, scientist…you get the picture, right?
Let’ be honest, government schools aren’t the answer. Unfortunately that means private schooling.
Back in 2015 I read an article on the most expensive private schools in South Africa.
The three most expensive schools in South Africa
- Hilton College in the Kwazulu Natal Midlands will set you back a whopping R209, 000 a year including boarding. That doesn’t include uniforms, books, tours, and sports equipment.
- MichaelHouse – also in Kwazulu Natal Midlands – R192, 000 a year
- Martins in Johannesburg will set you back R184, 460 a year.
Isn’t this crazy? Remember this is way back in 2015. And what’s the buzz with Kwazulu-Natal Midlands?
So how much would you need to save to get to Hilton?
Here is what you’ll need to do:
- By how much will the school fees increase every year – Let’s assume school fees increase by 6% every year, okay?
- The number of years you’ll need to pay school fees – Do you plan on sending your child from grade eight (Old Standard 6) right through to grade twelve (Matric)? We’re talking 5 years of schooling right there.
- The number of years you’ve got until then to save up – Let’s say your son was born in January of 2015 and that you started saving from March of the same year. So that gives us 13 years before he starts high school, right? Help me out if I got this wrong.
Year Fees increasing at 6% every year
|2021 Grade One||296, 470|
|2022 Grade Two||314, 259|
|2023 Grade Three||333, 114|
|2024 Grade Four||353, 101|
|2025 Grade Five||374, 287|
|2026 Grade Six||396, 244|
|2027 Grade Seven||420, 549|
|2028 Grade Eight||445, 782|
|2029 Grade Nine||472, 529|
|2030 Grade Ten||500, 881|
|2031 Grade Eleven||530, 934|
|2032 Grade Twelve||562, 790|
This means you have to invest R2, 512, 915 just for high school education (The sum total of all the red blocks).
On top of that, you will also need to come up with each of the amounts in red at the beginning of each school year.
How much will this cost you every month?
The first thing I hope you do is invest in a medium to high equity fund. Playing safe by investing in cash ain’t going to cut the mustard.
Let’s assume you invested in the Allan Gray Balanced Fund.
According to their January 2015 fund fact sheets, the Balanced fund has returned 15, 6% every year for the past 10 years. This percentage is important because the higher this percentage return the less you need to invest.
Investing in their Moneymarket fund – which is basically cash – over that same 10 years would have earned you a measly 7, 5% every year.
Now remember that the same thing applies to your retirement planning. If all you can afford to invest is a R1, 000 a month, and you have a massive retirement shortfall, then forget about playing it safe. You will need a higher risk high return investment.
But back to the schooling scenario…
Using the Balanced fund you would need to invest R2, 262 a month from March this year right through till December of 2031.
Why December 2031? That’s because you need to pay the full school fees in January 2032.
If you played safe in cash then R3, 652 a month is more like what you need.
Oh, and did I mention that you need to increase these amounts by 10% every year to get there?
You need to decide whether you’re serious about this.
R200 a month into an education plan even at a reasonably priced private school is called wishful thinking. It’s not even enough for a government school nowadays.
If R3, 000 a month is out of the question then prioritise what’s important – high school versus university education?
Going for the university option gives you an extra 5 years to save.
And if that’s still too high, why not do it the same way you eat an elephant – one bite at a time? In this instance why not tackle one year at a time?
Decide to knock off year one at varsity starting today. Assuming year one at varsity costs R100, 000 right now. In 18 years’ time we’re talking R285, 434 if we use the same scenario as above.
That’s a simple R283 a month invested right up to December 2032 – No annual increases needed.
Need some help with your own calculations?
Remember I wrote this article way back in 2015. Since 2018 is around the corner, you might need some help redoing all this.
Old Mutual has been doing this for years so why not have one of their financial advisors help you with this?
Leave your details below for a call-back
Until next time.
The InsuranceFundi Team