That afternoon, at our kitchen table, he showed me how saving can earn you money through compounded interest, and how owing money can bury you in debt. His message? If you have a financial plan, you have choices—and having choices and setting goals is what leading a successful and satisfying life is all about.

My dad’s personal financial plan was his road map, helping him navigate to his dreams. And the roads to those dreams were built on details. For instance, dad always knew exactly what his take-home pay was, how much the family spent every week on groceries and gas, and how much he needed to save each month to pay off his mortgage in 10 years—his main financial focus when I was growing up.

His plan wasn’t just about counting pennies though, it also allowed him to plan for luxuries—and pay for them in cash. That’s why there was a special column in his plan for $50 in weekly savings towards a family trip to Italy. He had a system he believed in, and made sure the household finances were managed effectively.

These days, most people I know don’t have a financial plan. We spend a lot of time planning for other aspects of our lives, such as our careers, marriages and having kids, but many of us fail to build a plan to achieve our financial goals.

If you would like to stop wondering about whether you’ll ever realize your financial goals, and build a plan to actually reach them, I can help. Read on and I’ll not only show you how to build a proper financial plan, I’ll take you through each step, complete with worksheets and a blank financial plan template that you can fill in at the end. Follow my simple instructions and in no time at all, you’ll have the peace of mind that comes with a professional-quality personal financial plan—without having to pay a financial planner a dime.

1. Talk to your spouse
Most couples never talk to each other about their financial goals. If you’re in a relationship, before you roll up your sleeves and dig into the numbers, talk to your spouse about what you want to accomplish. “Have a brief conversation about goals, values, and what kind of lifestyle you want,” says Karin Mizgala, chief executive officer of Money Coaches Canada, a national network of fee-only financial experts based in Vancouver. “That’s key to a good start.”

Action step #1: Click here to find 10 worksheets in the “MoneySense financial plan kit.” There is a PDF version of each worksheet that you can download and print out if you want to fill in the sheets with a pencil or pen. There is also a Microsoft Word version you can fill out on your computer. Print out “Worksheet 1-Prioritize your goals” for this step. You and your spouse should fill this sheet out separately, then compare the results when you’re done.

2. Figure out where you’re at
Before you start worrying about where you want to go, you first have to figure out where you are now. In this step you’ll create a net worth statement, which is essentially an honest measure of your current wealth. You do this by tallying up the value of what you own (your assets) and what you owe (your liabilities). When you subtract your liabilities from your assets, you get a number that represents your net worth. Your net worth statement is an important tool that charts your financial progress over the years. For instance, if your net worth is going down, you’re eroding your wealth and making it harder to achieve your goals. If it’s increasing, you’re on your way to getting richer and achieving your financial goals.

Action step #2: Determine your net worth. Print out “Worksheet 2-Gather your documents.” It’s a checklist to help you pull together what you’ll need before you start, including bank statements, credit card statements, and life insurance polices.

Once you have all your documents in front of you, you’re ready to fill out “Worksheet 3-Your net worth statement.” First list the values of all of your assets, including your home, your cars, your cash and investments. Then list your liabilities, including credit card debts, your mortgage and any other outstanding loans. Tally both your assets and your liabilities and transfer those amounts to the following section, your simplified net worth statement.

Finally, subtract your liabilities from your assets to discover your true net worth. This shorter net worth statement gives a clear snapshot of exactly where you stand today.

3. Track your spending
The key to building a strong financial plan for the future is to understand how much you spend and save right now. This is called tracking your cash flow, and it can give you a sense of control and confidence that makes it easier to make financial changes in your life.

Personally, I’ve kept a small journal tracking my spending for years because it helps me modify my behaviour if my spending gets out of control. It’s not always easy, but it works.

“The part most people dread is taking a really close look at their expenses,” says Mizgala. “But don’t put it off. Successfully managing cash flow is your key to financial control. It will give you an awareness that has more long-term value than anything you can invest in, buy or sell.”

The point of the exercise is to find out whether you finish each year with a cash surplus or a cash deficit. This number will tell you a lot about your general financial shape. A surplus means you’re living within your means, while a deficit shows you’re spending more than you make. If you have a deficit, you will have to cut your expenses (or increase your income) to achieve any financial goals.

What do most people find after doing this exercise? “They’re shocked,” says Mizgala. “It’s a very revealing exercise, mainly because if you have a family with two spouses with debit and credit cards, it’s hard to really see the complete financial picture unless you write it down. This awareness allows you to set up a system for the household.”

Action step #3: Record your cash flow. Fill out “Worksheet 4-Your spending and savings.” It shows what money is coming in (wages, interest, government benefits) and what’s flowing out (rent, debt payments, utility bills). Fill in all your monthly expenses in column 1 and your annual expenses in column 2. (You can leave column 3, the estimate for your future spending in retirement for a later date.)

Tally up your expenses in both columns and subtract them from total net income on both a monthly and yearly basis. The result is your cash flow deficit or surplus.

A good way to approach this exercise is to start with your regular monthly after-tax income and subtract the bills that don’t change month to month, such as rent or mortgage payments. If you don’t know the exact numbers, put in averages for things like groceries, gas or children’s activities. Then add in expenses that only come up a few times a year, such as travel, car repairs and gym fees. Estimate a total for these and divide it by 12, and put that figure in the monthly column of your worksheet. You may not pay the bills in 12 monthly installments but imagine you are setting money aside each month so that you have the total amount when the bill comes due.

4. Adjust your spending
Look closer. Are your expenses higher than your income? If so, you’re living beyond your means. You’ll need to adjust your expenses accordingly so you don’t go further into debt.

This step is not about punishing yourself or laying blame. If you’d rather eat out four times a week than buy a cottage in 10 years, that’s your choice. But you owe it to yourself to be honest about what you’re doing so you’re not wondering why you can’t reach your financial goals.

If you decide to cut back, there are some less painful ways of doing it. Consider renegotiating your mortgage to a lower rate or cutting out one major expense completely. A close friend of mine cut the $5,000 annual family vacation and substituted a couple of long weekends of camping instead. It saves his family $4,000 annually.

If you have a cash surplus, congratulations. You can start allocating money to meet your goals right away.

Action step #4: Compare your spending to your goals. Take a second look at “Worksheet 1-Prioritize your goals” and “Worksheet 4-Your spending and savings.” The idea here is to look at how well your current spending habits mesh with your goals. If you have a cash flow deficit you won’t be able to meet your goals, so you’ll have to see if you can free up cash by cutting back your spending in areas that are less important to you.

For instance, if you have a $5,000 a year deficit on Worksheet 4 and one of your goals is to go on a $4,000 family vacation to Britain in four years, you need to figure out a way to cut $6,000 a year from your spending. You could try using only one car and taking public transit to work. Such a cut could save you $6,000 a year in vehicle costs, allowing you to both balance your budget and reach your travel goal.

5. Set your life goals
Financial goals don’t just happen. You make them happen. This step requires you to assess where you want to be five, 10 and 20 years from now and answer some big questions, such as where you want to live in retirement and when you want to stop working.

One tip is to visualize what your life will be like 10 years from now if you do everything right. The truth is when they picture their future lives, very few people see themselves in a $10-million house in Hawaii. Most people’s goals are more realistic, such as keeping up their current standard of living in retirement (with maybe a few upgrades), preventing any financial disasters, and having the freedom to do the things they love, such as spending more time with friends and family.

“Think of what type of life you want in the future and how you are going to organize your life right now to get it,” says Mizgala. “Your job is to structure your finances so you can achieve your vision.”

Action step #5: Set your top three goals. Fill in “Worksheet 5-Your life and financial goals” and “Worksheet 6-Your top three goals.” If your are in a relationship, sit down with your partner and examine what your goals are and how they fit in with your spending and saving patterns. On Worksheet 5, list each of your top four or five goals and assign a dollar value to each, as well as a time frame for achieving the goal.

Now, compare how closely your goals align with those of your partner. In Worksheet 6, list the three most important goals that you both agree on, in order of priority, in column 1.

6. Develop a strategy
Once you know where you’re going, you need a plan to get there. The usual route is to spend less than you earn and invest the surplus in such a way that you can get where you want to go.

One word of caution—if you’ve identified your goals but you’re in debt, you probably should address that debt before you start investing for the future. “Even when people are not overspending and have debts that carry reasonable interest rates, I encourage them to work aggressively at paying those debts down,” says Norbert Schlenker, founder of Libra Investment Management in Salt Spring Island, B.C. “Don’t even think about investing before your debts are all gone.”

Action step #6: Chart a path to your goals. Go back to “Worksheet 6-Your top three goals” and in column 2, note any obstacles to achieving each goal. Then, in column 3, write down the action steps that you and your spouse have both agreed on to make that goal a reality. For instance, when you tally up the costs of your top three goals, you may find that you need an extra $65,000 in five years to meet those goals. The main obstacle may be that your household income is low because one partner works only part-time. That partner may decide to work full-time in order to earn extra money. The key is to develop strategies and appropriate timelines to make your goals materialize.

7. Review your insurance
If you work full time, much of your insurance may be provided by your employer’s group plan. But is it enough? If you feel confident enough to do some basic calculations yourself you can find out.

Many workplace benefit plans include disability insurance, but if yours doesn’t, get enough to replace at least 60% of your after-tax income.

Then look at your life insurance needs. The general rule of thumb is to get enough life insurance to cover 10 times your income if you have kids under 10 years old (five times your income if you have kids over 10), plus the amount needed to pay off your debt. So if you make $50,000 a year, you have $250,000 outstanding on your mortgage, and two kids under 10, you will need $750,000 in term life insurance. Go to www.term.ca for quotes.

At this point, it may make sense to have an agent review all your insurance policies—disability, life, auto and home—to make sure your coverage is adequate. But be careful. “Do not be oversold on insurance by an industry that is famous for doing exactly that,” says Schlenker. “Pay attention to fees, especially with life insurance. If you need more life insurance, chances are renewable term is the right product for you. You want plain vanilla coverage for a plain vanilla problem—your kids going hungry because you can’t work.”

Action step #7: Review your coverage. There’s no worksheet for this step, but you should still take some time to carefully review all of your insurance coverage. If you don’t have group coverage through work, you probably have private insurance policies for medical, dental, life and disability insurance. Consult an independent insurance agent for a quick review. If you need extra coverage, make a note of it so you can include that in your final financial plan.

8. Slash your taxes
Most tax planning is relatively simple. You’re probably doing a lot of things right already. For instance, if you own your home and use RRSPs, Registered Education Savings Plans (RESPs), and Tax-Free Savings Accounts (TFSAs), you’re already taking advantage of the best tax shelters out there.

To reduce the taxes you pay on your investment portfolio returns it helps to understand that the income tax system treats the various sources of investment income differently. Interest on bonds and foreign dividends is taxed at your full marginal tax rate, Canadian dividends are taxed at rates about one-third lower, and capital gains at half the full rate. So there are advantages to holding investments that generate capital gains and Canadian dividends outside of your RRSP and TFSA if you’re tight on contribution room.

Action step #8: Consider calling a tax accountant. Again, there’s no worksheet for this step. But a few basic principles apply. For those with low to moderate incomes, paying off debt—including the mortgage—is the best tax-planning you can do. That’s because you don’t pay taxes on the capital gains on your home and there’s no tax on the return you get for getting out of debt. If, however, you’re in a higher tax bracket—earning $85,000 a year or more—it may be worth paying for a couple of hours of an accountant’s time to see what mix of investment options—RRSPs, RESPs and TFSAs—is right for you tax-wise. Have these suggestions handy for your final plan.

9. Create an investing policy
Every professional financial plan includes an Investment Policy Statement (IPS) that recommends how a portfolio should be invested. It puts in writing the rules that will make you a more disciplined investor. Having an IPS helps you to stick with your plan and keeps you from changing course when the market gets volatile.

A typical investment policy might specify that your portfolio should always maintain a ratio of 60% stocks to 40% fixed-income investments. This ratio is determined by your time horizon and risk tolerance. The longer your time horizon and the greater your tolerance for risk, the higher the equity portion of your portfolio. As you near retirement and need the security of more stable income from your investments, the portfolio mix will usually tilt towards bonds.

An IPS also states the expected annual returns for your portfolio—typically 5% to 6% per year—over a very long time period, such as 20 years or more. Your IPS might also note the volatility you should expect for a given portfolio. For instance, it could say that you should expect the portfolio to suffer a 10% drop in the short term at least once a decade.

Action step #9: Determine which investments are right for you. Fill in “Worksheet 7-How are you currently invested?” and “Worksheet 8-Which investments are right for you?” On Worksheet 7, itemize every investment you own today—including cash, fixed-income products and equity holdings.

Worksheet 8 will help you assess how much you need to save monthly, when you’ll need the money, and what your risk tolerance is. The results will allow you to zero in on how you should invest in future to meet your goals.

If you have trouble with this section, you can always leave it for now. Once your financial plan is complete, you can consult a fee-only adviser to help you build an investment strategy that’s right for you.

10. Write up a will
Every adult who owns assets and has a spouse or children should have a will. An accurate and up-to-date will is the only way to ensure your assets will be distributed the way you want them to be. If you don’t have one, you’re letting the laws in the province you live in make those decisions for you. And if you hold the belief that your spouse will automatically inherit everything—you’re wrong. In most parts of Canada children trump partners. Without a will your husband or wife will get a predetermined amount of your assets—the rest goes to the kids.

Action step #10: Create or update your will. If you have an updated will it should be filed with your financial plan. If you don’t have one, hire a lawyer to draw one up for you. Visit www.lawyerlocate.ca and search for lawyers in your area who specialize in wills and estates.

11. Create your final plan
A typical financial plan has five main parts. The first outlines where you stand right now, that’s your current situation. The second contains your top financial goals, or where you want to go. The third is a simple net worth statement. The fourth lists the steps you must take to achieve your goals. It includes your income and expenses, an overview of your insurance, a section on retirement planning, and a section on estate planning. Finally, the fifth section—usually a separate document—is your Investment Policy Statement, which lays out how your portfolio is to be invested.

To get a better feel for what your financial plan might look like, let’s take a look at a plan that has already been created by a fictional couple, Patty and Walter Berglund. The Berglunds are a 34-year-old couple living in Halifax. They have two daughters, Debra and Marie, ages 5 and 2. Their household income is $110,000 and after all expenses have been paid, they have $20,000 in cash left over each year.

Their plan lists their top five goals—to pay down $20,000 in consumer debt, save $5,000 for a family trip to Disney World in two years, pay off their $150,000 mortgage in 15 years, save $60,000 in RESPs for their daughters’ post-secondary education and finally, to retire comfortably at age 60.

This is followed by a basic statement of their assets and liabilities that shows a net worth of $82,000. The couple’s projected income and expenses show a $20,000 annual cash surplus. That money is earmarked for their goals in the following way: In the first year the entire $20,000 surplus will go towards paying down the debt. In year two, $5,000 will go towards the big family Disney World trip, $5,000 towards an extra payment on their mortgage, $5,000 to the RESPs and $5,000 to a spousal RRSP for Patty. The couple agrees to continue using the annual surplus in this way each year until their goals change.

After consulting with an insurance agent, the Berglunds agreed that their group plans with their employer are mostly adequate but they decided to increase Walter’s insurance coverage by $300,000. In the section on retirement planning, the couple made some assumptions: that Walter remains employed as a physiotherapist and stays in the hospital’s defined benefit pension plan until age 60, and that Patty continues working part time earning $30,000 a year as a social worker. Walter will start saving $5,000 annually in a spousal RRSP for Patty once their consumer debt is paid off (excluding the mortgage). If they do this, the couple should have more than enough to cover their retirement expenses adequately. Their wills and power of attorneys are all in order.

The second document, the Investment Policy Statement (IPS), outlines the Berglunds’ investment plan. They have an average tolerance for risk and don’t require regular income from the portfolio right now. So a balanced 60% equity, 40% fixed income mix suits them fine. The couple wants a well-diversified portfolio at minimal expense. Thus, their policy states that low-cost index funds or exchange-traded funds are to be used wherever possible.

Their IPS also states that once a year the Berglunds will review their portfolio and rebalance to bring the asset allocation back to their pre-determined target mix of 60% equity and 40% fixed income. It also states clearly that sudden market price movements are not grounds for revision. This will help stop the Berglunds from making impulsive investment decisions out of fear or greed.

Action step #11: Create your financial plan. Open “Worksheet 9-Your financial plan” and gather together all of the worksheets you have already filled out. Worksheet 9 is a blank financial plan with all the sections already labeled for you. At this point, all you are really doing is taking information from the completed worksheets and putting it all together to form your plan. Before you proceed, it may help to review the sample plan for Patty and Walter Berglund at the end of Worksheet 9.

Now fill out “Worksheet 10-Your investment policy statement.” Again, refer to Patty and Walter Berglund’s Investment Policy Statement at the bottom of this worksheet for guidance. Write a brief summary of your current status, and under Objectives and Constraints write down your risk tolerance, time horizon, any taxation strategies you plan to use, and the amount of time you wish to spend managing your portfolio—in many cases, minimal.

Under Investment Strategy Guidelines, write an outline of how your investments will be allocated, according to asset class. The next three headings—Security Guidelines, Location Guidelines and Risk Control, Monitoring and Review are fairly generic and are already filled in for you.

Phew, it’s done! You now have a financial plan for the rest of your life. From this point on, as your goals change, modifications to your basic plan will be straightforward.

Of course you still have to follow your plan. But you’ll probably find that the process of putting it together has already changed some of your beliefs about how your money should be spent and invested, so changing your financial behaviour may not be as hard as you think.

To make sure you stay on track, you should take the time to review your plan at least once a year, and update it as necessary. It’s also a good idea to pull it out whenever you run into a big financial or life event, such as a market crash, marriage or job change. “It’s a tool to support you through life,” says Mizgala. “Money and household finances won’t be as scary when you break it down into these manageable bits. If you truly commit, it will be a huge boon to your emotional and financial well-being.”

It all starts this fall, when the Ontario Ministry of Education will begin integrating financial literacy into the curriculum for students in grades 4 through 12. By adding units to existing subjects like math and family studies, students will learn concepts such as saving, spending, budgeting, credit, and taxes.

From all appearances, Ontario won’t be the only province teaching money skills for long. Manitoba hopes to roll out its own financial literacy material for students in kindergarten to grade 10 in 2012. Saskatchewan and B.C. are also looking at adding financial material to their courses.

One of the key items on the agenda is professional training, as many teachers don’t even feel comfortable managing their own finances. “Teachers never had financial literacy education themselves,” says Gary Rabbior, president of the Canadian Foundation for Economic Education, “so it’s no wonder they don’t necessarily feel capable.”

The numbers levitated me off the couch. I’m sure many parents have faithfully tracked the rising cost of university since their kids were in a bassinet. I, however, had blissfully ignored the issue. My husband and I had paid for our post-secondary educations largely by ourselves, and we had always assumed that our kids would do more or less the same.

Fat chance, I now realized. Laura had done a bit of babysitting, but she still had to ask me for money to go to the movies. No way was she suddenly going to start gushing cash. And then I had Luca, her brother, coming up four years behind her, to consider as well. I realized with mounting horror that the total bill for putting Laura and Luca through university could easily hit $150,000.

My problem? After years of putting away dribs of money here and there for our kids’ education, my husband and I had accumulated a grand total of only $15,000.

I didn’t know whether to feel embarrassed at our lack of planning or outraged at the cost of education. When I talked to friends with teenagers over the next few days, I discovered that nearly all of them were as clueless as I was. After paying our mortgages and contributing to our RRSPs, most of us had managed to squirrel away only a few thousand dollars for our kids’ education funds. Our typical savings were a fraction of what it would cost to send a single child through university.

My biggest surprise was my husband’s reaction to the news. Carlo couldn’t see why we should pay for our kids’ education at all. He told me I was spoiling them. He had worked two jobs every summer through high school and college. He had paid his own way through school. He believed Laura and Luca should do the same.

Carlo told me we should immediately cut back on Laura’s dance lessons and soccer playing and encourage her to start looking for part-time work. Serving crullers a couple of nights a week at Tim Hortons or punching a cash register at the grocery store would teach Laura the value of a dollar and make her appreciate her education.

I didn’t know what to think. Carlo’s position seemed reasonable. Both he and I had managed to put ourselves through post-secondary education without much hassle. On the other hand, I couldn’t make the numbers work. How was Laura supposed to generate $75,000 or so over the next few years while going to school full time?

I decided to put the matter before the experts. First stop: Marc Lamontagne, a partner in Ryan Lamontagne Inc., a fee-for-service financial planner in Ottawa. I’ve always found Lamontagne to be a good source for financial wisdom that also makes emotional sense, so I explained my distress to him. As good parents, should Carlo and I be paying all of our kids’ educational expenses, paying none, or paying somewhere in the middle?

He told me it’s a question he gets asked a lot. “I see all three scenarios,” he told me. “There’s no wrong answer. But people have limited dollars so they really have to sit down and prioritize.” Lamontagne’s advice was to contribute what you comfortably can, but not to feel guilt-ridden if you can contribute only a fraction of the cost or even nothing at all. After all, it is your kids’ education, not yours. They should be prepared to finance the bulk of the cost — ideally through earnings, scholarships and the like, but also through student loans if need be.

It’s a tough-love approach that makes sense to my friend Lynn Braun, a single mom in Vancouver, B.C. Three years ago, after she separated from her husband, she was forced to look at her finances and decide between must-haves and nice-to-haves. “I had saved $25,000 for each of my two kids and I just decided that in the future I couldn’t afford to save any more,” says Braun, whose two kids are 13 and 10 years old. “Whether I have enough money to pay for all their university studies or not doesn’t matter to me. That’s all they’re getting.”

My problem is that Carlo and I don’t operate within such clear guidelines. We take vacations, we treat ourselves to dinner in nice restaurants, we enroll our kids in lessons and activities. When I looked at what Carlo and I spend in a year, I realized there were a few thousand dollars of wriggle room there. Perhaps we should call an immediate halt to all our little indulgences and pour every penny into saving for Laura and Luca’s university expenses. But would that turn our existence into an insufferably dreary ordeal? How much should we be willing to sacrifice for our kids? I didn’t relish the idea of going years without a vacation or a visit to a good restaurant. Spoiling our kids was one thing; spoiling our lives was another matter.

Just when I had gotten up my nerve to get tough and tell my kids that their education was their responsibility, I spoke to a couple I’ll call Eleanor and William Hudson. They have three kids ages 19 to 24 attending university in Toronto. The Hudsons were never able to save any money for their kids’ university education when their brood was growing up, but assumed that they would be in a position to help out when the time came for the children to go to school. Then William lost his job two years ago and money got tight. “As the kids were growing up, I really meant to start saving for their education but there was never any room for it in the budget,” says Eleanor, 52. “We’ve done our best to help pay for the kids’ housing costs but we’re letting them pay for the rest themselves. They have part-time jobs and they pitch in what they can, but I lie awake at night worrying about the debt they will graduate with. It’s a far cry from when I went to university. I worked a part-time job and was able to cover almost all of my expenses myself by working 20 hours a week. My kids will never be that lucky.”

Hearing the Hudsons’ pain proved to me that I didn’t want to wind up in the same position. Watching your kids take on a mountain of debt is wrenching enough if you have no choice in the matter. I couldn’t imagine putting our kids through that ordeal if Carlo and I were in a position to help out.

As I pondered the situation, I realized that if there was one big mistake that Carlo and I had made in our approach to our kids’ education, it was in ignoring the issue until Laura was on the verge of university. We had never discussed the matter, either between ourselves or with our kids. Laura had developed a firmly rooted expectation that her parents would pay for her education; Carlo and I had assumed that she and her brother would do most of the heavy lifting.

Avoiding this confusion is why JoAnne Anderson, a fee-for-service adviser with Raymond James in Mississauga, Ont., insists on reviewing her clients’ plans for their kids’ schooling every two years. She wants to make sure that the amount they’re putting away is sufficient to fund their ambitions.

Anderson stresses the importance of open and honest communication to her clients. If you expect your children to pay for most of their university education, you should explain that fact of life to them when they’re as young as seven, so that by the time they turn 15, they’re ready to work. “Open an honest dialogue with them,” says Anderson. “Ask them, ‘Where do you want to go for your post-secondary education?”

If you’ve decided that you will help your kids out financially, your best vehicle is a registered education savings plan (RESP). You can open an RESP at your bank or broker. For every dollar you contribute, up to $2,500 a year per child, the government gives you an immediate 20% top-up. (For more details on how to get the most out of your RESP, see below).

Anderson stresses that every situation is different. If your family is barely making it, an RESP may not be your best investment. Instead, it may make more sense to pay down your mortgage as quickly as possible, then take the funds that used to go into your mortgage and use them to help out with your kids’ tuition when the time comes. “Considering that you’re saving thousands of dollars in interest by paying your mortgage off faster, that strategy can work,” says Anderson. “If you can get your house paid off by the time your kids hit university, you’ll have lots more cash flow at that point.”

Whatever strategy you choose, get started now. Gregory and Catherine Drost began planning for their kids’ university costs 16 years ago, shortly after the first of their four kids was born. “Our goal has always been to give each of our kids $25,000 towards their costs,” says Drost, a district sales manager at Hyundai Canada in Dartmouth, N.S. “I’ve been saving a few thousand dollars a year since my oldest was three, and I’m close to meeting that goal. That’s all we can afford and I fully expect them to come up with the rest of the money themselves, whether it’s through part-time work, loans or scholarships.”

I admired the organized, methodical way that Drost had gone about instilling the right habits in his kids. “I started encouraging my kids’ savings habits years ago,” he says. “As soon as each one saved $20, I matched it and deposited that money into their savings account. I did the same thing when they saved $100 and $500. Believe me, they’re great savers now and very good with money.”

In my own case, it was too late to reshape my kids’ expectations. After several months of being tugged between my daughter’s calm insistence that of course Carlo and I would pay for university, and my husband’s constant refrain that we-put-ourselves-through-school-so-they-can-do-it-too, I decided to take a close, hard look at the numbers. I delved back into the past and looked at what I had actually paid and earned back when I was a student. The figures were eye-opening.

In the early to mid-1980s, when I was studying for a bachelor’s degree at the University of Toronto, I paid $1,000 a year in tuition. Add in the cost of books, and my school costs never topped $1,500. It seemed a large enough amount at the time, but it really wasn’t. If you adjust for inflation in the two-and-a-half decades since then, my tuition and books cost me the equivalent of about $3,100 in today’s dollars.

I lived at home and I never had a problem earning many times my school costs. From May through September, I worked a total of about 40 hours a week at three jobs: filing papers at an architect’s office, doing odd jobs at a magazine, and waitressing at a banquet hall three nights a week. All told, I earned $500 or so a week. By fall, I had typically earned at least $7,000. I had plenty of money to buy clothes, go out with friends, and put gas in my used car. Because I lived at home, I even had money left over for savings.

Compare that to the situation that faces Laura. Her tuition for a general arts and science program at my alma mater is $5,900. (That’s a relative bargain: if she were studying engineering, her bill would be close to $9,300.) Books add at least another $1,000 to the bill. (If you haven’t priced university texts for a while, get used to the idea of the $150 textbook.)

Many students can’t land summer jobs. According to Statistics Canada, the student unemployment rate this summer was nearly 21%. The bulk ofthe students who are lucky enough to find work wind up in stores, restaurants or other service jobs, making the minimum wage.

By my calculation, the most that Laura could make if she worked 40 hours a week at a minimum-wage job for the entire summer would be $6,000, or barely enough to cover her tuition. She would not have a penny left over for books, clothes, transportation or entertainment. She would not even be able to buy needed supplies, such as a computer or lab supplies. And that’s assuming she lived at home. If she wanted to go away to university in a different city, she would have to raise or borrow at least another $10,000 a year to cover living expenses.

When I showed Carlo my numbers, he relented. All right, he agreed, maybe times have changed. Perhaps our kids could use a financial boost. But we still had to be realistic.

So here’s the upshot: we caved. Or perhaps I should say that I caved. Laura just finished her first year of university this past May and I paid for it all. But what made the numbers work was a major concession on Laura’s part. Rather than going away to school, she agreed to go on living in her bedroom and attend the University of Toronto.

By staying at home and enduring her hopelessly uncool parents, she is shaving about $40,000 off the total bill for a bachelor’s degree. I figure her final tally will come in at around $35,000. That’s still a considerable burden, so she and I struck a deal. Laura has agreed to work during her summers throughout university and contribute $2,000 a year towards her university expenses.

It’s nowhere near enough to pay for most of her studies, but it’s a compromise that both Carlo and I can live with. And if Laura decides to apply to graduate school or law school in a few years? Carlo and I agree — she’ll be on her own.

Many parents think the best answer is to pay for a chunk of university expenses. The theory here is that with a degree to their name, little David and wee Sally should be able to take care of themselves for the rest of their lives.

But let’s face it. Some kids drop out of school. Others don’t do much with the BA you paid so much to help them get. You can spend thousands on tuition only to have your kids stock shelves at Wal-Mart. Talk about a lousy investment.

So maybe it’s best to wait and see how your kids turn out as grown-ups. Let them struggle through school and the early part of their career. Then, when they’re married, expecting a baby, and trying to scrape up enough money for their first house, you can swoop in with a fat down payment. But that strategy, too, can have its drawbacks, especially if your child’s marriage isn’t as solid as you might like.

The one sure thing is that it pays to think through your options early. “At one point or another every parent has to deal with this question, because children are going to go through periods where they have financial needs,” says Tim Cestnick, an accountant and financial expert in Burlington, Ont., and author of Winning the Education Savings Game.

A good starting point is acknowledging that each one of your children is different. Since nobody knows your kids as well as you do, consider these three strategies for three different types of children:

• The A student. If Junior is a superior student, your choice is simple — help him out with university fees. “Paying for your kids’ education gives you a bigger bang for your buck” than any other option, says Vera Adamovich, a certified financial planner in Ottawa, because when you contribute to an RESP, the government puts in money as well. Plus, “if I help my kids with an education, they’re going to more easily be able to afford a home of their own,” she says.

A bit of parental assistance during university can make a huge difference. Students who graduate with debt owe a median $24,000 in government loans. That debt can hang over their heads for a decade or longer, especially if they’re not making much money at their first jobs or if they’re heading off to medical school or graduate school after finishing their first degrees.

If you think your children are bright but unmotivated, your best plan may be to pay only part of their school bill, says FrankWiginton, a certified financial planner at TriDelta Financial Partners in Toronto. “If some of their own money is at stake, they’ll try harder,” he says. Better yet, use a carrot-and-stick approach, as Wiginton’s parents did. He had to pay for his university fees up front, but each time he passed a course, his parents reimbursed him for the cost.

• The college kid. For kids going to college, consider a different approach. Why? Because college tuition is cheaper than university tuition and kids often end up living at home if they go to a local school. There’s no reason they shouldn’t pay for a big chunk of their education. Unfortunately, college grads tend to earn less throughout their career, so instead of underwriting their education, you may want to wait until they need help with the down payment on their first home. Over time, your assistance will probably help them as much financially as a university degree. For instance, putting up $50,000 for their down payment on a $250,000 home will lower their monthly mortgage payments by about $440.

But giving kids money for a down payment can get tricky. If their marriages fail, their ex-husbands or ex-wives will get half of that down payment’s value, assuming the house is sold. “I’ve seen situations where the parents were very resentful when that happened,” says Adamovich. The solution is to loan — not give — your son or daughter the money. You never have to collect on the loan if your child stays married, but you can always call in the loan if your son or daughter get divorced.

• The stay-at-home son. No matter what level of school your kids reach, they will probably hang around your house a lot longer than you think. About a third of 25-year-olds still live with their parents, according to Statistics Canada, compared to only 16% in the early 1970s. The good news is if you’re still sharing the rec room with your thirtysomething son, you can give him a motivation to move out and a helping hand in life at no cost to yourself.

All that’s required is the ability to talk tough. When Wiginton got his first job after university, he was still living at home. His parents insisted on charging him $400 rent a month. Two years later, he got a different job in a different city. But before he moved his parents surprised him by giving him back every cent he had paid in rent. “They didn’t need the money. They put it in a savings account for me,” he says. “And that money came in really handy because there are a lot of costs you have when you’re first out on your own. It was a getting-started-in-life account.”

The 16,000 or so students from around the world who are admitted each year to these eight elite U.S. institutions enjoy some of the best educations in the world. At Yale, for instance, undergrads can sign up for a course called Amazon Rain Forest Expedition and Laboratory, which includes trekking to Ecuador with their prof to study rare plant life. Graduate students can debate faith and globalism with former British PM Tony Blair.

When Whitney Laughlin attended Harvard in the mid-1980s as a graduate student, she was mentored by John F. Kennedy’s secretary of health, education and welfare. “I got to go to his house once a week for tea and to talk over my papers,” recalls Laughlin, now a Victoria-based educational consultant who helps promising students get into top schools across North America. “I felt like I was rolling in chocolate! The kind of resources you find there….”

The schools that make up the Ivy League are Harvard, Yale, Princeton, Cornell, Dartmouth, Brown, Columbia and Penn. All of them are located in the northeastern U.S. and all of them — as their collective name suggests — are old enough to boast ivy-covered walls. Most were founded back when the U.S. was still a British colony and even the relative newcomer, Cornell, dates back to 1865. But it’s not just old stones and weathered residence halls that give these schools their clout. They boast star-studded faculty rosters and alumni directories that read like an A list of celebrity and power. Both Barack and Michelle Obama are Ivy alumni, as is George Bush. So, for that matter, are Matt Damon, Natalie Portman and Conan O’Brien.

Tuition alone at an Ivy runs about $35,000 (U.S.) a year, compared to $5,000 or $6,000 at Canada’s top universities. Remember, though, that you’re buying your child a lifelong legacy. Rather than delivering vast, anonymous lectures to hundreds of students, as so many Canadian universities do, Ivy League schools pride themselves on offering their students individual attention. At Princeton, there’s one faculty member for every five undergraduates.

When kids graduate from an Ivy League school, they earn paycheques in keeping with the quality of their education. The most recent College Salary Report by PayScale, a Seattle firm, says the median starting salary for an Ivy League grad is 32% higher than for those who chose liberal arts colleges. According to PayScale, Ivy Leaguers will still be ahead a decade into their careers, raking in 34% more than non-Ivy Leaguers.

The hefty financial payoff makes Ivy League tuition sound nearly reasonable — but your child’s shot at an Ivy League education hinges on more than you being able to cover the fees. All of these schools, but Harvard, Yale and Princeton especially, enforce admission standards that reject all but the highest-achieving teen. An A average and valedictorian status are strictly ho-hum stuff; your kid better be a concert-level musician or top athlete, too. Harvard rejects 91 students for every 100 who apply — and most of the rejected applicants are the best students in their high schools.

So what do you have to do to get your kid into an Ivy League school? Start by thinking of the admissions process as a project that begins in elementary school. At a minimum, your child has to be a stellar student. And academic prowess is just the beginning. “We estimate that over three quarters of the students who apply for admission to Yale are qualified to do the work here,” says the Yale website. “The great majority of students who are admitted, however, stand out from the rest because a lot of little things, when added up, tip the scale in their favor.”

Just what might help your kid stand out? Athletic achievement is good, says Laughlin, the college counsellor. She’s working with an excellent student who’s also an excellent sprinter, so the plan is to find out which schools “need someone to run the 100 metres” and apply there.

Hailing from outside the U.S. might work in your kid’s favor. Admissions officers at the Ivies strive to create a mix of students from a wide range of backgrounds, which could result in the gifted kid from Manhattan being passed up in favour of, well, Laughlin’s client from a small town called Pincher Creek in Alberta. She thinks her client has a great shot at Harvard not only because of his phenomenal vocal music skills (Harvard offers a program with the New England Conservatory), but because of his address: “If he were from San Francisco, he wouldn’t be nearly as appealing as he is from Pincher Creek.” She encouraged yet another of her Canadian clients to apply to Brown, which she calls “the quirky Ivy,” because of the girl’s ability to write economic policy statements. The key in all these situations is to decide on your “hook” — your unique selling point. Then figure out which university is looking for that kind of student, and play up your unique features in the admissions essay.

Or you could hire someone like Laughlin to do that legwork for you. The Independent Educational Consultants Association estimates 22% of freshmen attending private colleges have hired a college consultant. The hotshot in this field is Michele Hernandez (author of A is for Admission: The Insider’s Guide to Getting Into the Ivy League and Other Top Colleges), who charges as much as $40,000 per kid. She isn’t shy about her success rates, claiming on the home page of her business website (www.hernandezcollegeconsulting.com) that 24 out of 29 clients were accepted at Ivy League universities for 2006/07.

And if your kid doesn’t get in? Don’t lose heart. For Laughlin’s money, there are many other universities as good as the Ivies. Depending on your kid’s interests, they may be even better. Still, she concedes that prestige looms large in the minds of many of her clients. “A lot of my kids from Asia are focused on the schools they’ve heard of — Stanford, the Ivies.” When she suggests alternatives that might be a better fit for their ultimate career goals, their response is “Oh, my God, I could be going to a school I’ve never heard of!”

Luckily, there’s a new option: get your textbooks for free. Sites such as Textbook Revolution and Freeload Press offer free titles on topics ranging from algebra to psychology to earth science. You can download and print them yourself.

Jason Turgeon launched Textbook Revolution in 2004 in response to “greedy” publishers that he says are exploiting a captive market of students. “The problem is that it’s the professors who choose the books, but it’s the students who have to pay for them,” says Turgeon, a recent graduate from Northeastern University in Boston.

Turgeon says publishers have been using underhanded methods to pump up prices, especially in the science and business fields. They’re bundling textbooks with unnecessary CD-ROMs, producing deluxe hardcovers, and accelerating the new edition cycle in an effort to kill the used book market. “At first there were major changes between editions,” he says, “but now they often just change the font size and reorder the questions.”

Free textbooks vary in quality, just like for-profit books, but many are very good. Some were written by professors at Yale, Texas A&M and other top universities and donated to the public domain. Others were commissioned by Freeload Press, which makes its money from ads inserted into the books.

If your professor isn’t using a free textbook, Turgeon says you can still keep a lid on costs by using websites such as bigwords.com, abebooks.com and bookfinder.com to hunt down secondhand copies. But he says you should still bring the free texts to the attention of your professors. After all, if enough of them switch over, all textbooks could one day be free.

What’s the best way to save for your child’s university education? A few weeks ago, I received a letter from a reader who was grappling with just that issue. She was already using a Registered Education Savings Plan (RESP), but she was interested in setting up an in-trust account too and wondered which was better.

The answer depends upon the specifics of your family situation. RESPs are simple and usually mean that you get free money, but there are some cases where the trust can be the better choice.

Why RESPs rock RESPs are a gift from the government, and for most people, they are the best way, hands down, to save for a child’s education. True, you don’t get a tax refund when you contribute to an RESP, but once the money is in your child’s RESP, it grows tax-free until Junior takes it out. To make the deal even better, most middle-class families are eligible for up to $500 in free government money each year that they contribute $2,500 or more to an RESP. Free money is not something you often come across, so grab it when you can.

Thanks to recent changes, RESPs are now more flexible than ever. The 2007 budget raised the lifetime contribution limit to $50,000, and eliminated the annual caps on contributions.

The best RESP strategy, if you have the time and the money, is to put the entire $50,000 into a regular investment account when your child is born. Then transfer $2,500 or more into your child’s RESP each year until all of the money is gone. That way you’ll get the maximum amount of compounding on your contributions, as well as the full $500 a year in free government money.

The trust advantage An in-trust account is a tool that allows you to give your children money for their future, while maintaining control over how the money is invested until the kids turn 18.

These accounts are a great notion if you’ve already invested $50,000 in an RESP and want to contribute even more to your kid’s education. You can use a trust, because they have no maximum.

In-trust accounts also shine if you want your child to get the money whether he or she goes to university or not. Unlike an RESP, these accounts don’t have to be used for education. That means your children could spend their trust money on anything they choose—which could be dangerous, but could also be more fair. Setting up a trust rather than an RESP could mean that you don’t end up giving thousands to an ungrateful son who goes to college and nothing to a daughter who decides to volunteer in Africa instead.

Of course, you could simply save up money for your kids in a regular account, but with trusts you don’t have to pay the taxes on capital gains. By depositing money in the account, you are essentially giving it to your kids (you’re just holding it “in trust”), so they pay the taxes on gains. Your kids will likely have little or no income when they turn 18 and start withdrawing the money, so they usually end up paying little or no tax, says Karen Yull, national tax principal at Grant Thornton LLP in Toronto.

Trusts are complicated so you should probably enlist the help of a lawyer and an accountant to set up yours. To make sure the taxman agrees that your account is really a trust, you should sign an agreement stating that deposits to the account are an irrevocable transfer of property to your child and that you agree to never take the money back or direct what happens to it. You should also make sure that the trustee and the person making the deposits are not the same person. Most families designate one spouse the trustee, and the other makes the deposits.

Finally, you should understand that even if you do all of that right, you generally still have to pay the taxes on dividends, interest or other income from the investments in the account. That means you should choose investments, such as stocks, that will experience most of their growth in the form of capital gains.

Taxes aren’t everything One final word of caution. Tax breaks are important, but never forget that deciding what kind of investment to purchase in the first place is more important.

The woman who wrote me the letter about trusts was worried about how to slash her taxes, but she had money that wasn’t going to be touched for 18 years sitting in a savings account that paid only 2.6%. Since inflation is now running at almost the same rate, there’s a good chance that her education fund will actually shrink over the long haul in real terms. If that happens, taxes are the least of your problems.

The numbers are scary, with some experts forecasting that the cost of a university education, including tuition and lodging, will run upwards of $100,000 by the time Noor graduates high school. Luckily for Noor, her parents are already investigating options, the most popular of which are Registered Education Savings Plans (RESPs).

RESPs are a good deal for the simple reason that “the government gives you money, and that doesn’t happen too often,” says Linda Knight, vice-president of BMO Mutual Funds in Toronto. In most cases, if you contribute $2,000 a year to an RESP, the federal government chips in an added $400.

There are two basic types of RESPs: self-directed and group, or “pooled,” plans. Group plans are popular for their simplicity — you make your regular monthly payments and the company takes care of the rest. But in the past these plans have drawn criticism from regulators for questionable marketing tactics. Some also enforce restrictive policies. For example, a few only allow for just one payout per school year.

Self-directed RESPs, which can be set up at most Canadian financial institutions, tend to be more flexible and transparent. You can invest in mutual funds, stocks, or GICs, and choose from among conservative to aggressive investment options. “If you have a really young child, you can be a little more aggressive with your asset mix,” says Knight. When university comes, students can withdraw what they need, when they need it.

Both types of RESPs qualify for the Canada Education Savings Grant (CESG). Under this program, the feds contribute 20 cents for every dollar you put into an RESP, up to $2,000 a year per child. That means the maximum annual grant per child is $400 for most middle-class families. (You can contribute up to $4,000 a year to a child’s RESP, to a lifetime maximum of $42,000.)

Lower-income families get an even better deal. Recent changes have increased the grant to 40 cents on the first $500 invested by families that earn less than $35,595, to a maximum $500 a year in CESG contributions, and 30 cents on the first $500 for families earning between $35,595 and $71,190, to a maximum of $450 a year. Lower-income families may also be eligible for the Canada Learning Bond, a $500 one-time RESP grant, which is supplemented by an additional $100 a year until the child is 15.

You don’t get a tax break for money you put into an RESP. But the funds grow tax-free and the withdrawals are taxed in the student’s hands. In most cases, then, the withdrawals are effectively tax-free since any amount owing is offset by the student’s education credit and personal tax credit.

The funds can be used at any qualifying college or university, and even some apprenticeship and correspondence programs. If your child decides not to pursue further education, you get your principal returned and any returns on that money can usually be rolled into RRSPs to avoid taxes; all the grant money, however, goes back to government coffers.

Some families prefer to invest outside of RESPs — in informal trusts, by purchasing stocks or bonds in the child’s name, or simply by opening a savings account. The drawback with these options is that they don’t qualify for the CESG. Thus, it only makes sense to use them once you’ve received the maximum grant.

If the task of paying for your little one’s university education seems daunting, remember that it’s not solely your responsibility. “I would like to have enough put aside so Noor doesn’t graduate $100,000 in debt,” says Sabah Mirza. But “I also expect her to work and contribute towards her own education.”