How to avoid back-to-school financial stress

You can avoid back-to-school financial stress.

Back to school only happens in January, but the financial planning needs to be done now so that you know how much money you need to save.

In preparing and saving for back-to-school expenses, you need to answer two questions:

How much money do I need to set aside?

Where must I save my money?

How much to save

• Make a list of everything that needs to be paid – not only in January, but for the full school year. This includes school fees, a uniform, stationery, and maybe a new schoolbag. There might be transport costs every day, and food for lunch, as well as extramural activities, sport and school outings.

• Draw up a rough schedule of when which amounts will need to be paid. When you know how much you need by when, you know which amounts to put into your personal budget in which months. It is also easier to plan around smaller amounts throughout the year, rather than one big, scary number.

• Find out from the school what discount you can get by paying school fees, and maybe other expenses too, upfront. If the saving is significant, you could consider taking out a personal loan to cover the lump sum and get the benefit of the saving. However, make sure that the loan will not cost more than the money you can save. If the total loan cost will be more than the saving, rather go for monthly payments.

• Also find out what else the school can help with. For example, it might have a shop where you can buy second-hand school clothes that are still in a good condition.

• Discuss the school budget with your child or children, so that you can decide together how best to spend the available money. For instance, if your child knows that there is money for either an outing or a sport activity, she can decide what she wants to do. In this way, you can avoid the disappointment of having to say “no” and your child learns valuable money skills from early on.

• Finally, divide the money you need for each payment milestone into the months between now and then. That gives you the amount you need to save every month to have enough money when a specific bill has to be paid.

Where to save

Putting money aside for next year’s school expenses is not a long-term investment. You should, therefore, look at putting your money in short- to medium-term savings accounts.

There are four main types of bank savings accounts:

1. With a call account your money can be withdrawn immediately or at very short notice – usually not more than 24 hours – but the interest you earn is generally quite low.

2. With fixed deposits, your money is tied up for a specified period of time, which can range from one month to five years. The interest you earn is usually fixed upfront for the full term, and is higher the longer you commit to leaving your money in the bank.

3. Linked deposits are fixed deposits where interest rates can increase during your savings term, but there is a guaranteed minimum.

4. With notice depositsyour money stays in the savings account until you give notice that you want to withdraw it. The notice period is usually 32 days. The longer the notice period, the higher the interest rate.

You can also save with the support of friends, family and/or community members in a stokvel. Make sure you know and trust the other members, and that you all understand and agree on the rules of your stokvel.

When you do your back-to-school financial planning early enough, you are more likely to have enough time to save the money you need when the school year starts. It is a sure-fire way to prevent financial stress.