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Monday, November 24, 2014

RESP Or Getting Free Money

Posted by Tim Stobbs on April 28, 2014

You might have noticed that on my investment net worth statements I NEVER mention our RESP account we have setup for our kids.  The simple fact is I treat that money as theirs and that I’m only the caretaker of it.  So I tend to ignore it for most of the time.  Yet as number of my friends have been having kids lately I keep telling a similar story that might be useful for some other parents out there on how to save rather painlessly for your kid’s education.

I’m a firm believer in taking free money when every I can get my hands on it so for a number of years we filed our taxes and got our government grants for our kids.  The two programs we typically got money from were the Universal Child Care Benefit and Child Tax Benefit.  The Universal is by far the most straight forward, you get $100/month for each kid under the age of six while the Child Tax amount depends on your income but again is paid monthly.

Rather than actually spending any of that money on my kids I treat the entire amounts as free money and I setup a family RESP plan and put the money in that account where we get a 20% grant on what we put in up to $2500 per kid per year.  So in total I started our RESP account for the kids with all government money, where they added in more government money after we put in.  Then as the kids got older I kept the contributions the same and slowly starting paying ourselves after the kids’ Universal Child Care stopped (right now the contribution is $167/kid/month).  The advantage of this method is your income by this point has typically gone up a bit so it is a bit easier to cover it yourself.

Our investment of choice is actually boring as hell, it is just a dividend mutual fund which has returned about 6% since we picked it in 2005.  Yet overall all these actions has resulted their RESP account having a balance of $45,800.  Not too bad when in fact I haven’t put in that much of my own money.  Also this means I’ll likely surpass my target of saving $40,000 per kid, as my oldest is now 9.  So assuming things continue the same pace the kids should have ~$100,000 between both of them when I’m ready to quit full time work around age 42.

Obviously there are several different ways to approach saving for your kid’s education, but I found our method fairly easy to use.  If you have kids, how much are you trying to save?  Are you on track to meet it? Any other ideas on how to save for their education?

A Real Gift for the Kids

Posted by Tim Stobbs on December 6, 2013

While most parents focus on buying that perfect gift for their kids for the holiday season, I tend to skip that.  I don’t want then to have the ‘perfect’ gift, but rather a gift.  Since more often than not about a month after opening their present they won’t be able to tell you who bought them that toy anyways.  Instead I tend to focus my efforts right now on something the kids never even see their Registered Education Saving Plan (RESP) account.

After all what do you want most for your kids?  To be happy, to grow up and find something they like to do as a job and potentially retire early themselves (if they would like to).  So an investment in some kind of post secondary education will likely help them out for the majority of their lives (especially if they can keep any student loans to a minimum).  While I don’t know what my kids will want to do when they grow up I am at least taking some steps to put some money aside for them.

Currently their RESP account has a little over $40,000 for both of them.  Not too bad given my boys are currently ages 8 & 5.  That gives me about 7 more years of saving to finish up saving for the first kid.  We currently put aside $167 per kid, per month.  So adding in all their grant money and assuming a 4% real return we should have just under $95,000 (in today’s dollars), by the time the first kid goes to post secondary.  So overall each kid will have around $50,000 to fund some kind of education.  Will that pay for it all? Frankly I doubt it, but it at least gives them a good start in life.

You see I love my kids, but I have no illusions of paying their way through Harvard law school which tuition alone for a SINGLE year is over $50,000.  Needless the say, I’m keeping my sights a wee bit more modest for them.  You see I really don’t want them to have “the best”, just like their holiday gifts, I just want them to have something.

So how much would you put towards your kids education?  Do you look for the best or settle on more realistic dreams?

Would You Tell Your Kids Your Net Worth?

Posted by Tim Stobbs on February 8, 2013

I was reading a comment on a website the other day about the fact they would never tell their kids their net worth.  Which of course to me sounded odd, but then again I do publish mine online for strangers to read. ;-)

Yet it did get me thinking, how am I going to explain to my children when I finally retire that Daddy doesn’t need to go to work anymore?  According to my plan that would be roughly when the kids will be 14 and 12 years old when this will occur.  I’m somewhat tore on the idea of how to approach the topic, since on one hand I do want to be honest with them, but on the other don’t let them think they are rich (My wife and I may be, but they won’t be).

I think the approach used will change based on their ability to understand the numbers or not. I do think I will explain the basic concept of we lived below our means for many years and saved the extra money.  After we invested the extra money it began making its own money.  Once our invested money made more income then our current spending I didn’t need to go to work anymore unless I wanted to.  From there I’ll likely just answer questions.

Yet for now I don’t hide our conversations about money.  It’s just something that Mom and Dad talk about in front of the kids.  Besides when I comment to my wife that our investment accounts are nearly $200,000, the kids never made a comment.  To them it was only a number and frankly they don’t have any context for it.

I think it helps that we never argue in front of the kids, instead we endlessly debate things.  So they are used to hearing bits of conversations on ethics, social policy, government debt, social dynamics….well just about anything that either one of us reads during a day.  So money really isn’t a taboo topic in the house which should help with things when I do have to sit them down and explain: Daddy got a new job as a private wealth manager…for my wealth.

So would you tell your kids your net worth?  Why or why not?