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Ask Sherry: How to save for a child’s education & thoughts donating while in debt & on life insurance

You asked, and I am answering every Friday once I have enough questions!

You can ask any question using the form here.

Hi Sherry! What do you recommend for saving for a child’s education?

I’m in the US, and there are college funds but lots of limitations tied to them. I’ve been saving for my (now) two kids, in a once-high-interest savings account. I feel like I’m losing a lot of opportunity leaving the money in there. p.s. my kids are 5 and a half, and 11 months. The older one has 10k, and the younger has 1.5k. Thank you!!!

I can’t speak for your situation specifically, but I put my son’s education in a mix of savings and investments.

Every year, Canada gives 20% back on all the money invested under their registered education savings plan (RESP), so I don’t put more than $2500/year invested. The rest is in cash in a high interest savings account.

I invest his money in index mutual funds with the idea in mind that he will use that money in 12 years or so – this book I wrote on Canadian investing basically outlines how I invest his money and 50% of mine.

I follow that strategy and adjust my holdings as we get closer to his education date.

I also buy a few individual stocks with his money, but that’s under 10% of his portfolio.

Hi, I saw the amount you donate and I was very moved. Would you donate differently if you were in, say, 500k of debt?

Depends. $500K is a lot to be in debt by. O_o

If it is a mortgage at a low interest rate, I’d set aside a smaller amount like 1% or less to donate, or focus on clearing all debt first before donating.

If it was consumer debt at a high interest rate, or crippling your finances, I wouldn’t donate at all.

My whole philosophy on donations and tithing is: Do not give any money you cannot afford to give away with a free heart, considering your bills and expenses. Become wealthy and rich, so that when you do donate your money or your time, it is done freely.

It is much better to take care of your own financial situation and get it IN ORDER so that you have excess to give away happily, than to force it out of your budget and then worry about buying food for your family, or meeting your next bill.

The money you’re giving away in this case instead of paying the creditors? It isn’t your money you’re giving away, it is theirs.

I ABSOLUTELY DO NOT agree with giving money you cannot afford to give. If you can’t meet your living expenses, you have no right to give money that isn’t yours.

Hello Sherry! What are your thoughts on life insurance?

I have none… as in I do not have any life insurance.

As I have only one dependent on my income (my son), and my partner doesn’t need my money (and I don’t need his, we are both at the Lean retired level/work optional, and he has gone back to school); we have more than enough for my son, and absolutely zero debts. No mortgage, lines of credit, or credit cards. It is purely assets for my son, and even if they taxed my estate now, he would end up with almost $750K in assets, net taxes.

As a result, I don’t need life insurance.

BUT! I do know this — if there are any dependents that rely on your income (spouse, children, etc), you need to get life insurance.

If your death will result in them being in serious financial #$(&@! then you need to get life insurance.

What kind of life insurance, you ask? I am not the person who can advise on that – I’ve never purchased or had any in my life.

I will tell you however that for tax purposes, on your final tax return upon your death, your life insurance benefits are NOT taxable (along with TFSAs, Cash and your Principal Residence).

Still have a burning question?

You can ask any question using the form here and all of my previous Ask Sherry posts are here.

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