I love to set financial goals. Many of my goals are short-term. Saving for an emergency fund is top of my short-term priority list, three-month expenses done. I am also saving up for two holidays this year. The long-term goals are covered with my private pension contributions.
I also have a medium-term goal to save for. And it’s a big one that many people underestimate the cost of and how much of a contribution they as parents will need to make. I am saving up for my three boys future. For university or whatever they choose to do at the age of eighteen.
With this being a medium-term goal more than five years away, investing the money is a great idea. A regular monthly contribution into a stocks and shares ISA should provide me with a great return. A return that is much better than cash. Of course, there is risk involved, and the investment value can go up or down but given the time span of the investment it should ride the ups and downs of the stock market.
I have three boys who are currently aged eleven, nine and six. I want them to have the same opportunities that I had at the age of eighteen. To be able to continue with their education and go to university if they chose to. And have no financial restrictions getting in their way.
Of course, different paths may be sought. University isn’t the right choice for everyone. Whatever happens I want them to each have a good amount of money to start off their life. Maybe money towards a deposit on a house or a way to start off their own investment journey.
But how much will I need?
This is a difficult question to answer as who know what will happen with the cost of university education in the next seven to twelve years. But I can base some calculations for my goal on the cost of university now.
Student Loans – Tuition Loan and Maintenance Loan
The more I read about student loans the more I accept that they are different form of loan. They should be considered to be a form of taxation for earning that degree and (hopefully) improving your future salary potential. The student loan is a necessary requirement of attending university. There is a tuition fee element where up to £9,250 per year to paid straight to the university.
In addition, there is a maintenance loan paid to students to help cover living expenses. Student may end up leaving university with a student loan of £40 to £50k, but this only needs to be repaid once they reach a salary of £25k. Any outstanding loan is wiped after 30 years.
This maintenance loan is a complex beast that I won’t go into in too much detail here, you can read all about it in this very brilliant post from Much More With Less. But it is not enough and is means tested meaning a parental contribution is required.
Parental contribution is Required
The current maximum maintenance grant, if living outside of London is £8,700. But is means tested if the household income is above £25,000. If your household income is £40,000, not unreasonable for a joint amount of income, the maximum loan reduces to £6,828.
Sticking with the £40k household and the maximum maintenance loan of £6,828. Students do get a nice long summer holiday for June, July, August so this amount needs to cover around 9 months of living expenses. This is £758 per month. The average cost of rent alone according to Save The Student is £566 per month. Leaving just £193 per month to cover all other living expenses.
Leaving a Parents Contribution
This is very small amount of money that is extremely challenging to live on. Save the Student have carried out research into how much parents are having to contribute to their children’s university finances and the average support is £138.50 per month.
I have spoken to a couple of friends whom have children at university right now. One is giving £450 per month to their child and the other is giving £250 per month.
Back to How much Will I need to save?
I am using these assumptions, all three of my children go to university outside of London for three years. Based on the Save the Student research and my friends, I am going to assume that I need to contribute £250 per month for 9 months each year.
3 boys * 3 years * 9 months * £250 per month = £20,250. Each child will need £6,750 in extra financial support from us.
There is my goal. £20k is my goal meaning that my boys will manage financially at university. And this feels completely do-able as I have already started investing money. I put money each month into a stocks and shares ISA.
Let’s assume a 5% prudent return on my investments (remember that with investment there is risk and investment can go up as well as down).
If I were to put aside £200 per month from now in 2019. by the time Dylan starts university in 2026 I would have £20,064 set aside in my investment. A healthy return on the £16,800 paid into the investment over the seven years. Enough money to cover all three of the boys going to university when they choose (plus extra in returns in the additional years). Saving £200 per month feels like an achievable for aim for something that I absolutely must have money set aside for, and it’s less than I’d need to put in than if I was using a cash ISA instead.
Where can I get a stocks and shares ISA?
It can be daunting to start investing, but often the hardest part is getting started. Investec Click & Invest understand that, and make it easier. If you have £2,500 or more to invest, they will build and manage a portfolio for you, so you don’t need to know anything about investing.
You could open a brand-new Stocks and Shares ISA or a General Investment Accounts from Click & Invest or transfer your ISA from elsewhere into Click & Invest. Fees are 0.65% on balances less than £100k, so if your balance is £10,000, your annual Click & Invest fee would be £65. Remember, there are also underlying fund charges which average 0.81%. These fees are lower than some other ISA providers I have looked at, even though they have real experts managing your money, so you know you have access to the highest quality investment management.
There are also very simple graphs showing you past performance, so I found out that £10k invested in the medium risk ‘measured’ strategy in Dec 2011 would have grown to £17k by Dec 2017 – that’s not far off my savings target!
There’s a £20k limit on investing new money into an ISA this year, and the deadline is 5th April. So if you’re keen to get started it’s better to do it sooner than later.
The views and opinions expressed within this article are those of Mrs Mummypenny and not of Investec Click & Invest. Please be aware that any form of investment can go up and down. You may get back less than you invested. All investment carries risk and it is important you fully understand these risks and are willing to accept them. The tax advantages of ISAs may change in the future and depend on your individual circumstances. You may want to consider advice from a qualified IFA, just make sure they are recommended by a trusted friend and check their investment levels as some will only work with clients with an investment level of at least £150k. This post was written in collaboration with Investec Click and Invest.