Like most things in life, good things don’t last forever. This certainly applies to free grants for your child’s Registered Education Savings Plan. Every year you have access to some form of free grant whether through the Federal Government or the province where you live, but all of these grants have specific windows of opportunity to apply. Awareness is key so that you don’t miss your chance at free money.
There are three reasons you shouldn’t be lazy when saving for your child’s RESP.
1) You’ll leave free money on the table
It’s just common sense. Never walk away from free money. So, if you want to get these grants, you’ve got to get your cute little booty over to RESP specialist’s office and open up an RESP account. A great advisor will know exactly what you qualify for and she’ll walk you through the deadlines to get your grant paperwork in the cue on time.
Understanding various government grant programs on your own can be challenging and a recent survey from Ipsos and Knowledge First Financial indicates that 82% of parents expect guidance and advice from an RESP specialist throughout the application process. Seek out the help of a qualified RESP specialist versus DIY’ing your way through RESP savings.
A summary of the available government grants is below. Click to expand the image.
2) The earlier you invest this RESP money, the more it’ll grow
Compounded interest and reinvested returns is what grows your money when it’s invested. It earns interest and returns on the original amount, then interest and returns are earned on that total larger sum and so on.
I also like to think of the compounding effect like making a snowball. You stand at the top of a hill in the dead of winter and pack some snow together with your hands until you have a snowball that’s the size of a grapefruit. The snow you use to make the snowball is your savings. Once you’re satisfied, you let your snowball roll down the long hill.
On its way it picks up snow, dirt, twigs, and whatever else it rolls over; this is the interest and returns that your savings earn over time. With each rotation, the surface area of the snowball expands, which is like the reinvestment of your interest and returns. At the bottom of the hill, the once grapefruit-sized snowball is now the size of an exercise ball (like the ones you stretch on at the gym).
You’ve probably guessed this already, but the longer the hill, or time, you give your money to grow, the bigger your snowball becomes — that’s the power of compounded interest and reinvested returns. So, the moral of this story is the earlier you start to save for your child’s RESP, the larger your snowball will be.
3) If you lose money, you’ll have time to make it up
Certainly not all of us are proficient investors and that’s why good RESP specialist is key. The fact is though, you’re RESP dollars are going to be exposed to some market risk through the form of investing. Generally these risks are professionally managed and your funds will grow steadily over time, with the occasional ups and downs.
But, sometimes RESP values can drop. So, the earlier you start, the longer the road you have ahead to recover from any dips in value.
The only thing you should be totally and completely lazy about when it comes to your child’s RESP is putting your regular contributions on autopilot. Yes, I’m talking about setting up automatic contributions through your RESP provider. So, every time you get paid, you make an RESP contribution like $50 or $100 or whatever amount you choose.
While you’re at it, try to top-up that contribution by a little smidge every six months. You’d be amazed at just how easy it is to come up with an extra $30 every month. All you have to do is reduce the size of your coffee from a large to a small and voila, that saves $1 per day.