Having a child is a magical and exciting experience, but it’s also one that brings a whole myriad of new responsibilities and challenges along with it. From caring for your child in their infancy to educating and guiding them as they grow, mothers and fathers have a lot of tasks to accomplish in the years that follow a baby’s birth.
Right from those early moments, many parents begin to feel an innate sense of duty towards their children, eager to give them the best possible start in life and set them up for the brightest of futures. One of the most important aspects of giving your child a great chance at future happiness and success is making sure they can afford to go to a good college.
For this reason, many parents and other relatives start saving up straight away after a baby is born, putting little bits of money aside here and there and hoping to gradually build up a college fund that can be used many years later. However, saving for college isn’t always as simple as putting spare nickels and dimes into a box. It requires careful planning and the right approach, and here are some tips to get you started.
Set Up a 529 Plan
529 college savings plans are one of the best options you can consider when it comes to college funds. For those who aren’t quite sure of the details, a 529 is a kind of savings plan, typically sponsored by a state government, that is designed to be used for future education costs.
529 plans can offer a wide range of benefits, including tax deductions for contributors, and when you need to withdraw the money you’ve saved to pay for college, it won’t be taxed either. You can usually set up a 529 account for just a small starter fee and then gradually build it up as the months and years go by.
Consider Community College
If you’ve got a late start on saving for college for your kids or just want to save some extra cash while still allowing them to get the higher education they need, it’s not a bad idea to consider sending your child to a more affordable community college for the first two years of their studies.
During this time, they can continue living at home, saving a huge amount both for you and for them, and giving you an extra two years to build up some last-minute savings before they move on to a more prestigious college.
A Roth IRA is another financial savings option you might like to consider when planning for college funds. Yes, a Roth IRA is typically associated with retirement savings, but there aren’t actually any rules or laws that prevent you from using those funds for college purposes.
You can set up and contribute to an IRA at any age, as long as you’ve got some form of earned income, and good advantage of this method is that even if you don’t end up using the money for college purposes, you can still save it up for your retirement. On the downside, it’s not quite as effective as a 529 and, unlike a 529, other members of the family can’t contribute.
Stick to the One Third Rule
Given that the average annual cost of college tuition is close to $10,000 for public school and over $30,000 for private schools, it’s important to address the fact that you might not be able to save up the entire amount, even of the course of several years and especially if you get a late start. Plus, there are all the associated costs like books, housing, transportation, and more to take into account.
Accept early on that you probably aren’t going to save every single penny to give your child a completely debt-free education. Instead, aim to follow the one-third rule, which means trying to save about a third of the total costs over the years, then use your income to cover another third and student loans for the final third. This is much more manageable for the average family.
Saving for college can seem like quite a challenge in the early years, but keep at it and put whatever money aside you can each month. Slowly, as time goes by, you’ll see that funds start to grow, and the process can be made even more efficient by following the tips above and making the most of savings options like 529 plans.