Saving for college can seem overwhelming, but it doesn’t have to be.
Parents understandably worry about the cost of a quality education these days, with tuition and expenses ballooning. This makes it ever more important to start thinking about college early. These tips will help you plan ahead for sending your student off to college. The best time to start is when your child is born, but if you haven’t started yet, we’ll also cover ways to catch up on savings.
Tip #1 – Set a monthly savings goal year one.
In an ideal world, parents who plan to send their child to college would start saving from the day they leave the hospital. While there are many student and parent loans to cover expense, it’s nice to have solid starting savings to help soften the blow. That’s why one of the best things you can do for your child’s college fund is to set a monthly savings goal, and stick to it! Saving even $50 per month will amount to nearly $20K by the time you send your student off to college.
Tip #2 – Look for savings vehicles that will maximize returns
When it comes to college savings, all accounts are not created equal, and shopping around and comparing plans can help to maximize savings for school. For instance, a 529 plan is a kind of savings account set up through states, with assets managed by professional fund managers chosen by the state, with a few dozen mutual fund-type investments for parents to choose from.
The advantage to a 529 plan is that it is tax deferred or flat out exempt, so long as funds are dispersed for expenses related to higher education, such as tuition, books, room & board. One of the best features of a 529 plan is that anyone can contribute to the plan by making a financial gift, regardless of income.
Taking a quick look at the graphic below, we see that with a starting account value of $1000, $50 monthly contributions from parents into a 529 account will grow the account value to nearly $28k by the time the student turns 18, with roughly $5K of value than in a taxable savings account.
Tip #3 – Ask family members to contribute part of their gift budget to your student’s college fund
Whether it’s money for a birthday or Christmas, parents should consider putting all or some of monetary gifts from friends and family into a savings account for college. While there can still be a lingering stigma around asking relatives and friends for monetary gifts in lieu of others, it can be a great way to save for your child. Relatives and friends might be more likely to contribute or kick in if they know that their gift is going toward a bright future for their favorite niece, nephew, grandchild or greatgrandchild!
Tip #4 – Treat your child’s college fund like your 401(k)
I have a friend who, anytime he takes his kids out to eat, loves to get a rise and make the wait staff laugh by commenting loudly “This one’s coming out of your college fund!” Thankfully, however, in actuality he has setup automatic deposits from his paycheck, and adjusted lifestyle expenses accordingly to meet his college savings goal.
Consider this: Setting aside $20 twice a month for 18 years adds up, totaling nearly $10K by the time your child is 18—and that’s not taking into account investment returns! Establishing a direct deposit to your child’s college savings account makes it easier to continuously save, without being tempted to spend the money on a a new ”toy”, a tropical vacation, or even breakfast!
Another aspect of treating your child’s college fund as you would your 401(k) is Don’t touch it! No matter what the temptation, “borrowing” from the college fund can have disastrous consequences to your ability to meet your end goal, not to mention incurring possible tax penalties.
Tip #5 – Consult a trusted financial advisor today
Chances are that while you want the very best for your child, the prospect of financially planning for your child’s college education can be daunting and intimidating. There is a lot to learn before you can set up the right savings plan for you and your child, and there is even more to keep up with over the 18 or so years the plan will be growing. The good news is you don’t have to go it alone. Schedule a consultation with us here at Holdfast Wealth Management today, and we can get you started down the savings path and toward a bright future for you and your child.