A colleague asked me about advice on some education savings fund. I told him, honestly, whatever fund you intend to start saving for your new baby’s education, it should be complemented by a property strategy. Then, I asked him, how much do you think is enough for an education fund? He said if overseas, half a million should be the minimum by the time the fund is needed. Assuming it’s RM500,000 how much would you need to save monthly for the next 18 years? Well, RM500 per month is definitely not enough. RM1,000? Assuming inflation does not kill everything that the fund gives you as dividend, well, perhaps you may hit RM500,000 by the end of 18 years. Savings is a very good way to achieve your financial goal and it is also quite safe and low risk too. Once you do the calculation, you would note that saving RM1,000 can indeed give you RM500,000 easily in 18 years. However, I asked him to also consider buying a property instead as a hedge as well as a form of ‘savings’ for his current baby and perhaps babies in the future.
Okay, coming back to education funds, well, it may not necessary be for education. If your kid is really an amazing student, more often than not, a scholarship awaits. Or else, play sports, get into national team and scholarship awaits too. My sister got quite a good deal because she was a state player for softball. Okay, if your kid is not the top end ones, then it is ok to get just a degree. These days, there are many colleges or universities that you can enrol your children into and even if it is one of those dual award ones, one degree by the local university college and another one from the overseas university, the total cost would not reach RM100,000 for a 3 year course. In fact, the last I heard, it’s just RM60,000. During my time, it was just RM35,000. So, should you not save? Please, you must save but a property strategy can also be done in tandem.
Get a property which you can rent out easily. Even if the mortgage could just barely cover the rental. Note that if property prices do not rise, the rental would soon give you great returns based on your capital investment. If however the property prices rise a lot and your rental return is bad in terms of %, it’s even better right? Sell your property and repeat the process. What if you can’t rent out your property? Well, today if you still buy a property that could not be rented out, I think the ‘wrong’ is on you. Go online, search the ones which can be rented FIRST. Then only look at the current prices. If it’s secondary, more often that not, you can still find. For new ones, sorry, the prices have gone way too high for any rental to be self-sufficient. As for capital appreciation, considering that your property price is just RM300,000, a 2% up every year is still RM6,000 per year! This is already RM500 / month. Remember your savings in the first paragraph? 🙂
written on 11 Nov 2014
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