Scotia Investments

Financial Learning Centre

Scotia Investments Financial Learning Centre

Money Management Guide - Budgeting for Baby

So you've just found out that you are pregnant, pretty exciting! Like any good parent, you are already planning all the great things you are going to do for your child, and how special that child will be. You decide he/she will go to the best schools, become a lawyer, doctor or engineer.

But then you take a look at the cost of good education and fall into despair, as you realize that these aspirations, though noble, can certainly prove to be a challenge. Fret not! Like every other situation in life, being prepared will always give you the edge. Preparation in this case should take the form of careful planning, to ensure that you are able to provide for all the educational needs of your child.

The First Step

The first step is to gather information. Determine which schools you would like your child to attend and gather information on the costs involved for tuition, books and other miscellaneous expenses.

Next, prepare a time line to determine how much time you have to prepare yourself to meet the costs related to the different stages of your child's education development. Then prepare a budget, detailing your current income and expenditure, so that you can determine how much you can afford to save on a periodic basis, towards this particular goal.

Get Busy

Once you have your information, time line and budget, it will be time to get busy. Procure the assistance of a licensed investment advisor, who can assist in the next steps of the planning process- designing you investment portfolio.

Choosing your investments should be your next step, and a very important one. Take a careful look at the investment options available and determine which are best suited to you in terms of the risks and returns, as well as flexibility. Given that goals of this nature are generally long term, minimizing your tax-burden should be an important consideration.

A 25% withholding tax is levied on interest for most investment options, over the long-term, this 25% can add up to a significant amount. For example, the difference in return over a five-year period on $500,000 at 15% p.a. invested in a tax-free account, as opposed to a taxable investment is over $150,000. There are however options that allow you to avoid this burden. Tax-free fixed income investments are great for the more cautious individual, allowing you to maximize returns on a relatively secure investment.

For the more adventurous, equity-linked investments represent an excellent way to maximize your returns over the long run, all tax-free!! And, if you are unable to manage your equity investments on your own, there are managed funds available, which take away that hassle, while still providing you with impressive returns.

Hit the Ground Running

Having determined how much you can afford to invest towards this goal, how long you have to achieve this goal, and the investment vehicles best suited for you, it is now time to hit the ground running. Do not delay.

This is a common mistake that can render your goal unnecessarily difficult, if not impossible. Remember, consistency is key. No matter how small, committing yourself to consistent savings will set a trend that will bear fruit in the years to come. The value of interest compounded over several years is remarkable. J$5000 invested monthly in a combination of fixed income and equity investments over 16 years can realize over J$12 million.

So, make that call, speak with an investment advisor, set the right path to your child's future, it's never too late. Do not let opportunities pass you by, make the necessary sacrifices now. In years to come, when your professional son/daughter goes off for the first day at work, you will be glad you did.