Pay for Your Kid’s Education WITHOUT Breaking the Bank

| August 12, 2014 | 6 Comments

Education

When I was in grade six, I vividly remember asking my father if he had money for me to go to university, and his answer was a BIG FAT ‘no’.  Callously, at the same time, my parents reminded me on a frequent basis that if I didn’t go to university, I would be doomed to work in a fast food restaurant as a dishwasher for the rest of my life.  I felt crushed and sad imagining myself slaving away, washing dishes.  However, I quickly changed my attitude and started saying “how can I pay for my education?”  I decided that I would work hard to get good grades so I could get a scholarship to pay for university.

Looking back, I realize my parents gave me a gift: an incredible life skill called a big kick in the butt to work smarter.  Fast forward, and now I have a university degree in engineering thanks to a scholarship.

18 years from now, accounting for inflation, your kids education could cost from $37,000 (live at home student) to $137,000 (live away student) according to a TD Bank report from 2009!  Wow!

Have you ever wondered how to motivate your kid to go to university, to encourage them to work harder and smarter to earn a scholarship to pay for education, or to empower them to save their money?  I wonder about this all the time!  But rather than dwelling on speculation, focusing on hope, and worrying about it constantly, I choose to lead-by-example, and at the same time have a backup plan in case I need to pay.  Here are 4 strategies to pay for your kid’s education without breaking the bank.

1) Add a Rental Suite to Your Home:

A house with a rental suite can help pay for your kid’s education!

Scott McGillivray, from the HGTV show “Income Property”, says it cost about $10k on average to add a rental suite to your home.  So, given that he often overran his estimate in the episodes I saw, and based on my experience with renovations, you could say this cost was more like $20-25k.

If you are able to rent your extra suite out for $700 per month (a very realistic amount for a small bachelor suite in many cities in Canada) and you saved that rental money for ten years, even if you account for vacancies, you would have over $60,000 after you paid off your renovation cost.  Live in happiness in the remaining space in your home knowing that your tenant is paying for your kid’s education.

If sacrificing space is not your cup of tea, then #2 might be for you!

2) Buy a Rental Property to Help Pay for your Kid’s Education:

Another way is to invest your money to make your money work harder.  It is possible to buy a nice investment property, like a starter home, and have the rent pay off the mortgage, property taxes and other expenses, plus more!  There are places out there that can generate solid income.  I’ve been investing my savings steadily into real estate to generate enough income to help pay for my kids’ education, amongst many other things.  Hold that property for at least ten years and with simple mortgage pay down by a tenant, you will generate solid wealth when you sell your property for your kid’s education.  For example, with a twenty percent down payment, buy a $250k home at 25 year amortization and have a tenant pay down the mortgage for ten years.  Even if you don’t consider any appreciation in the property value, you will have a lovely $65,000 in equity at the end of those ten years.

3) Invest in your Tax Free Savings Account:

You might already be sitting on an empty Tax-Free Savings Account (TFSA) with significant contribution room.  Start contributing to your tax fee savings account and register it as an investment account with your bank.  Now you are ready to invest in stocks, bonds, mutual funds, etc.  If your investments gain money in this TFSA, you are protected from the tax man!  Imagine if you bought Apple shares (NASDAQ: AAPL) 10 years ago, and you held it until now, even with a few market crashes you would have grown your money by over 2100% (that’s over 35% per year).  Granted, you can’t always pick the big money makers.  But, if you haven’t ever contributed to your TFSA, as of 2014 you have $31,000 of eligible contribution.  With a $31k base, you only need 7% annual return to reach your $60k goal in 10 years.  That’s because this money will be protected from taxable gains, allowing you to withdraw it tax-free to pay for your kid’s education!  Investing in a TFSA can be a money generator, making your money work harder and freeing up your time doing whatever it is that you really want to do.

4) Watch Your Money GROW in your RESP in Turn Key Investment Properties:

There are many investment firms that offer turnkey real estate investments with fixed returns ranging from 8% to 15% annually.  You can invest your Registered Education Savings Plan (RESP) in these products.  Typically there is a minimum investment of $20,000.  The nice thing about these products is that they are secured by a real property asset.  Now imagine getting an extra $2000-$3000 of extra income per year towards your kid’s education.

I truly believe in the saying “when there’s a will, there’s a way”.  Your will to achieve combined with your ability to take action is a powerful combination.  Become financially savvy and make your money work smarter for you so you can pay for your kid’s education without breaking the bank.  Using the strategies described, you will be on your way to paying your kid’s education in no time.

Many happy returns,

Tracy Ma

Financial Nirvana Mama

Biography:

Tracy Ma is a mother of twins, mentor, engineer, real estate investor and stock trader in Ottawa, Ontario.  Connect with her at her website www.financialnirvanamama.com where she shares videos, and articles to empower women on investing.

Photo Credit: http://www.morguefile.com/archive/display/137704g

 

 

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Category: Education, Family, Finance, Living

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Comments (6)

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  1. KD says:

    We started an RESP when our first child was born. The government adds 20% to our contribution, to a maximum of $500 (contribution of $2500). We’ve done everything we can to contribute to this. We need to find a way to save for it now or later, and where else can you get a 20% rate of return?

    • Tracy says:

      Hi,

      I encourage you to save up in your RESP, it’s definitely a great return. And you can still invest your RESP while the government pays you the twenty percent. There are investment companies that will provide decent returns on your RESPs, you need to invest at least 20 k that are locked in brick and mortar assets. So in all, you could get 27-28 percent! What I was encourgaging was that you can get more than 20 percent by making your money work harder.

      Or you can also buy stocks with your RESPs through your bank (need to open a self directed stock account) and you can continue to invest in your money in stocks to get a larger return.
      Hope that helps.

  2. Stephanie LaPlante says:

    These are very helpful tips!

  3. Judy Cowan says:

    Very helpful tips, the amount they say that an education could cost in another 18 years is crazy – wow!

  4. Victoria Ess says:

    Thanks for the helpful tips!

  5. Suzie M says:

    all very good ideas if you don’t start now it will be very difficult

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