Do you have children? Do you think you might have children someday? If the answer is yes, you may be wondering about college costs. Here’s an article from a reader who saved $130,000 for their children’s education fund in nine years. Enjoy!
College keeps getting more expensive. Many higher-paying jobs require some form of post-secondary education, so saving for your children’s education gives them a solid head start and reduces the financial burden on you when the time comes.
Today I’ll explain how we saved $130,000 for our children’s education fund over nine years.
Related content:
- I Thought I Was Too Good For Community College
- 21 Ways You Can Learn How To Save Money In College
- Cutting College Costs: Understanding The Cost And Value Of Your Degree
- How I Paid Off $40,000 In Student Loans in 7 Months
About Mr Fundamental
I’m 39 and a computer engineer. My wife, Mrs Fundamental, and I live in Canada with our three children. We have a nine-year-old daughter and seven-year-old twins (a boy and a girl). My wife is a stay-at-home mom, which has saved us a significant amount on daycare over the years and provided constant support for the kids after school and on sick days.
I focus on keeping things simple and maximizing value in life. My favorite topics include early retirement, frugality, investing, and enjoying the journey. If you spend your time on the most important things, you’ll be more likely to succeed.
Related: Parents Paying For College – Is This A Good Idea?
Our kids
My wife and I have been married 12 years. Back in 2009 we thought three or four kids might be right for us; we had our daughter in 2010 and twins in 2012. By that year we had three children under two and were happily settled.
Recently I asked our eldest what she wants to be; she wants to be a veterinarian. Our youngest daughter also plans on becoming a veterinarian, and our son says he wants to be a computer engineer like his dad.
I checked tuition costs at our local university. Veterinary medicine costs about $10,737 per year. Because it typically involves three to five years of undergraduate study followed by four years of veterinary school, total tuition could reach roughly $70,000. Including textbooks and living expenses, a $100,000 estimate is conservative.
Computer engineering tuition runs about $8,800 per year. Over four years that’s around $35,000 for tuition alone; including living costs and books, $50,000 is a reasonable total.
Costs vary depending on country, public versus private schools, and whether students can live at home. These are examples and not the most or least expensive programs. Dentistry at our university, for instance, costs about $35,667 per year and could exceed $150,000 in tuition alone. Arts and Science programs are among the cheaper options here but still cost around $6,755 per year.
The student loan problem
Student loan debt has ballooned over time. Many students borrow all the money needed for post-secondary education and graduate already in debt, then spend a decade or more repaying loans. As of 2018, U.S. outstanding student loan debt was reported at about $1.5 trillion; Canadian student loan debt is also substantial. Starting your career with large debt limits options like investing or paying down a mortgage.
Why save for your children’s education fund?
Financial independence is a major element of happiness for many. Achieving it means you can choose how to spend your time. Helping your children toward financial independence by giving them a debt-free start is a powerful gift. I was fortunate to graduate without student debt thanks to family support, scholarships, and summer jobs, and that early advantage allowed me to begin saving and investing sooner.
You can’t claim to be fully financially independent without a plan for your children’s education—at least that’s my view. Your children will still need to work, save, and invest to reach their own goals, but you can remove the heavy burden of student loans and give them a meaningful boost.
The investment vehicle
In Canada we use Registered Education Savings Plans (RESPs). In the U.S. the comparable vehicle is a 529 Savings Plan. Both offer tax-advantaged growth. Canadian RESPs also include a 20% government grant on the first $2,500 contributed each year per child (up to $500 annually). In the U.S., 529 plans typically offer state-level tax deductions or credits for contributions, so both systems provide immediate benefits—either direct grants or tax savings.
We chose a family self-directed RESP with TD Direct Investing. A family plan reduces paperwork and increases flexibility: funds can be shared among beneficiaries depending on each child’s education path. With a family RESP, we can allocate more to children who need it and less to others. U.S. 529 plans require a single beneficiary per account, but beneficiaries can be changed and funds transferred between accounts, offering similar flexibility.
The savings
Since each child was born, we have consistently saved $2,500 per child every year. In Canada that also brought a $500 per-child government grant annually. Saving $2,500 per child each year can feel daunting, but think of it as an investment that yields an immediate return: a 20% boost in Canada or tax benefits in the U.S.
If saving that amount is difficult, consider small lifestyle changes to cut expenses. We’ve used these strategies to make it work:
- We always buy used vehicles; once we bought new and learned the lesson.
- I cut my own hair and my son’s hair to save on barber costs—a habit I’ve kept for years.
- We use meal planning to avoid costly last-minute restaurant meals and shop at Costco weekly.
- I bring lunch to work almost every day, with occasional exceptions for special occasions.
We’ve been saving $7,500 each year total for three children ($9,000 including grants). We’ll continue until we reach the lifetime grant maximum per beneficiary, which is $7,200, likely around 15 years of contributions per child. Prioritizing both children’s education funds and retirement required choices, but consistent contributions plus compounding add up significantly over time.
The investments
For the RESP, we invested in low-cost index mutual funds. I chose TD e-series index funds for their low management fees, no-load structure, and the ability to buy in small increments. Our asset allocation is roughly:
25% – TD Dow Jones Industrial Average Index Fund. Exposure to 30 U.S. blue-chip companies.
25% – TD U.S. Index Fund. Tracks the S&P 500 and provides broad U.S. stock exposure.
30% – TD Canadian Index Fund. Tracks the S&P/TSX Composite Total Return Index for Canadian exposure.
20% – TD International Index Fund. Tracks the MSCI EAFE Index for developed markets outside North America.
What about ETFs?
ETFs and index mutual funds are similar in holdings and strategy. ETFs generally have slightly lower expense ratios, but trading ETFs can incur commission fees per transaction. Index mutual funds at some brokers can be bought and sold without commission, making them convenient for regular contributions. If commissions are low or you prefer the ETF structure, a similar ETF-based portfolio would work well. If I were starting in the U.S. today, I might put everything into a total-market ETF like VTI for simplicity.
The results
After two years of smaller contributions and seven years of contributing $7,500 annually, we’ve accumulated about $130,000. That’s a substantial amount compared to what many parents could provide in the past. Some might argue we benefited from a long bull market—partly true—but even a conservative assumed return of 8% on an equity-based portfolio would have resulted in roughly $100,000 from our contributions.
I estimate we’ll have around $300,000 by the time our children attend college or trade school. That may not fully cover the cost for two veterinarians and a computer engineer, but it will supply a major portion of the expenses and offer peace of mind. We’ll encourage our kids to pursue scholarships, summer jobs, and to save where possible so they learn responsibility and contribute to their own future.
Do you plan to save for your children’s education? If so, how do you plan to invest the money?
Love, Mr Fundamental
Note: Mr Fundamental is not affiliated with TD Direct Investing and receives no compensation for mentioning them.