
Four years before my daughter was born, I started an education fund for her. When she was born, the fund had enough money in it to pay for her independent high school education. Here’s how I did it.
Starting the education fund:
There are many ways to start preparing financially for your child’s education. I might need to write another post which looks at each of them. The focus of this post, however, is to explain how I started and grew my daughter’s education fund. Later in this post, I provide more details about the fund I chose and why. That aside, the fund I chose required me to submit a few documents online to get it started. I also needed to make an initial once-off minimum investment of $5000.
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Regular investment:
I started a recurring automatic direct transfer into the fund from my bank account once it was set up.
At that time, my job paid me fortnightly. I made a direct transfer of $200 from my bank account into my daughter’s education fund the day after I was paid.
There were a few key reasons why I made the transfer recurring and automatic. My first reason was that I didn’t think I would have the discipline, commitment or care to transfer the money manually every two weeks. My second reason was that scheduling the transfer for the day after I got paid made sure there was enough money in my account for the transfer to happen.
Dollar-cost averaging:
The last reason was a simple but powerful strategy I had read about called dollar-cost averaging. Dollar-cost averaging requires me to consistently invest the same amount of money into the same investment e.g. an index fund. Index funds are made up of units of equal value. This means when I invest in my daughter’s education fund I buy units of that fund. Investing the same amount consistently means that when the value of the units goes up I buy less and when the value goes down I buy more.
For example, regular investment of $100 into an index fund that has $1 units gets me 100 units. If the value of the units goes up to $1.20 my $100 investment gets me 83 units. If the value goes down to $0.80 the same investment buys me 125 units.
This means that over time, my consistent investment bought more units at the lowest price and fewer units at the highest price. I don’t have to try and predict when the fund’s units will go up or down in value because my consistent investment effectively smoothes out the ups and downs of the price. It ensures that as long as the trend of the value of the units is up, my total investment goes up in value.
Top Comments
Hi, I'm the author of the article. Thanks for your question.
The goal of the fund is to provide my wife and I with the choice of any school for our daughter, regardless of the cost or whether it's public or private.
As I mention in the article, I didn’t go to a private school. I'm a product of Australia's public school system. Hopefully my achievements speak to its virtues.
Why a private school? There are so many incredible public schools and plenty of terrible private schools.
But why not a private school? There are so many incredible private schools and plenty of terrible public schools.
It really depends on the area you live in as to which is best & what you want from a school.
We are public schoolers but I know every parent wants the best for their own child & if that means private then I say go for it!
I think you're missing the point of the article, which was that this sort of investment fund can help you pay for a big expense, with the keys being contributing regularly and having an aim that helps keep you motivated to do that. Switch it to saving up a deposit for a home loan or a major overseas holiday or something else, and it should work the same. Private vs public education is a debate for another article.
Thanks David S. You're spot on about the key aspects of growing an investment and the point of the article.
Australia has excellent schools in both the public and private systems.
My hope is that some people may take on the principles of the article so they can reach their own financial goals, whatever they may be.