Most entrepreneurs are efficient at identifying market gaps, capitalizing on opportunities, and implementing effective systems that are profitable. However, when it comes to children’s educational planning, many entrepreneurs operate in the dark.
A strategic mindset that helps entrepreneurs launch a business venture often goes missing when dealing with education costs. Not handling it all properly means leaving your children struggling just because of issues that could otherwise be avoided. Here are some areas that even the smartest entrepreneurs overlook, but you shouldn’t.
Ignoring Tax-Efficient Savings Vehicles and Government Grants
Most entrepreneurs know all the tricks for tax optimization in their business context: they know how to extract the max amount of tax deductions, get paid on the right timeline for tax purposes, have the right corporate structure and so on. However, when saving for kids’ education, they end up relying on general-purpose savings accounts/investment plans.
Parents need to understand that the cost of education expenses rises at a rate faster than inflation. When they save through a non-registered account, they need to consider the taxes on the compounding of the entire amount they invest. It’s no less than a “taxed” punishment on the compounding process, which they need to work in their favor for their kids’ future. Most parents don’t even know that they have various government grants available, like an RESP, which can save them from paying taxes.
The solution is to modify your savings plan for education from generic investment accounts to specific savings plans that are designed for education savings. An RESP helps you grow your savings without any annual taxation on gains. As a result, you pay taxes only when you withdraw your money, which would likely be when your kid is already in a different tax bracket. There’s also a government bonus given that functions like a direct transfer of wealth. Just remember that starting early makes all the difference.
Conflating Education Funding with General Financial Plans
Many entrepreneurs believe that since their business, investments, and property rentals help build overall family wealth, educational costs will take care of themselves when the time comes. That’s not the right way to approach it; instead, you need to treat education funding as a distinct objective, not something that will “work itself out”.
This blind spot creates unnecessary stress about money at the wrong time, when a family can least afford it and when they need to be most confident about their finances. Rather than having a readily available, continually growing education fund at their disposal, parents find themselves in a position to act quickly at this pivotal point in time. Some families put off going to university, others have to take out loans that could be avoided, or dip into their own retirement savings, which results in tax penalties.
You have to think about setting up a plan for educational funding that is separate from your overall financial plan. You can think about it this way: you wouldn’t use your retirement funds for a business, would you? You can apply this same logic to your educational savings plan because, this way, you can make sure that your kid’s future is taken care of without disrupting your overall financial plans.
Endnote
If you’re an entrepreneur and want to build a strong educational funding strategy, you need to approach the concept with the same passion and attention you approach your business strategy. You should set clear goals, get professional guidance, use dedicated funding options, and execute your plans early. That’s the best way to secure your child’s future.
