People often tend to think that parents need more money when their kids are very young, or better yet, babies. However, the price of piled up diapers doesn’t even come near to the price of education, especially college education. The average price of a college year varies widely, and it depends on the type of university and the state, but generally speaking, four years in public institution can cost somewhere between $9,000 and $32,000, and by 2030, an average price of tuition is expected to grow to $44,000. And if you count in the books and other additional costs, these numbers will only keep on betting bigger and bigger. As a parent, you want to make sure your child gets the best possible education, and that’s why you need to start saving as early as possible. Here are a few ways how to do it.
You might not think of college expenses as a part of your budget while your kid is still in elementary school, but if you start setting the money aside early on, you will spare yourself a lot of headaches in the future. For starters, you should take into account the total amount of income you receive per month and then subtract the taxes. Next, calculate your monthly expenses and bills and subtract them, too. The amount that is left should be put aside for your child’s education. If you’re not comfortable with putting so much money aside, determine a sum that is reasonable for you (e.g. $50 every month).
If you are delaying the start of the saving process or you are skipping a month or two, now and then, automated savings may be a better option for you. This way, you will be able to automatically deposit a part of your salary to a 529 account or any other account you are using for this purpose.
Tuition isn’t the only college-related cost your child is going to have. First, you need to make sure that your child gets to college in the first place. That’s why it is a good idea to hire university advisors or seek guidance from that will help you secure your kid a spot in an elite university. Furthermore, you will have to take into consideration the apartment/dorm room costs, food, additional classes, etc.
A 529 is a tax-advantaged plan that allows you to give contributions to it at a rate that suits you best. It is sponsored by state agencies or educational institutions and the withdrawals can be made only for college expenses, such as dorm room and tuition. It is important to know, though, that investing in a 529 plan can reduce student’s eligibility for participation in need-based financial aid. However, the chances of that happening are very slim since the money is considered your asset.
There are several other saving plans that can help you stock up on cash for your child’s college education, such as:
Roth IRA: a type of tax-advantaged retirement savings account that can also be used for college savings.
Coverdell Education Savings Account: tax-advantaged plan, but only if the money is used for educational expenses. However, unlike a 529 plan, it can cover some additional college costs, such as private institution tuition.
UGMA and UTMA Custodial Accounts: these accounts are viewed as financial gifts that are held in custodial account, until the kid reaches adulthood. They offer similar benefits as 529, except there are fewer tax relieving options.
Sometimes you can do everything right and still not reach your dream of paying for your child’s education, but that is why you should all work together with the goal of, at least, minimizing the student loan debt.
Motivate your kids to get better grades in high school
Encourage them to find a job
Enroll them in Grade Fund so that people can give away gifts for your child’s education.
Education is important, but often too expensive. That doesn’t mean that you should give up on your kid’s ambitions, because there are always ways to put some cash on the side.