Tips & advice on getting your finances back on track.
Raising a child is a truly wonderful experience. It is also incredibly expensive. From the day they are born, those little bundles of joy start draining your wallet. Between clothing them, feeding them and financially supporting every aspect of their life, it is hard to even begin to think about saving for their college.
Depending on where your child goes to college (in state vs. out of state) and the type of college they attend (public vs. private), you could be spending $40,000 to $150,000 for four years of college. With college costs continuously increasing, those numbers could be much higher 18 years from now. Before you start to panic, remember, you and your children have options.
A few things to consider:
You do not have to pay for your child’s college
Most families cannot afford to pay for the entirety of their child’s education, especially when they are putting multiple children through college. Do not stress if you do not have a college savings fund for your child. It is OK! There are many ways to pay for college that do not involve you footing the bill. Scholarships, loans and financial aid are options to consider when sending your child off to college.
You can also consider asking family and friends to make a contribution to a child’s college fund rather than buying birthday or holiday gifts. If you are able to start from a young age, you may be able to save up quite a bit over the years.
Consider more affordable ways to get an education
If your child is a few years away from entering college, now is the perfect time to begin researching their options. Starting off at a community college is a great way to reduce education costs as these colleges are significantly less expensive than four year universities, and your child can continue to live at home, eliminating the room and board expense. Once finished at community college, most of the credits earned can be transferred to a four year university. If your child has their heart set on going away to college, consider public universities as opposed to private, as they receive state funding and are generally more affordable.
You may also want to get your children involved in their college savings plan. Once they reach an age when they can work, have them start contributing to a savings plan. Their contribution may be small, but it will help instill a strong work ethic and financial values. Perhaps they will even continue working throughout college, and take on responsibility for some of their own expenses.
Read More: Money Saving Tips For College Students
If you can afford to save, look into your options
If you feel you have flexibility in your budget to save, then by all means, start saving! Develop a savings plan that is realistic for you and do not stress about saving enough to support the entirety of your child’s college expenses. Most financial advisors recommend saving at least one third of your child’s anticipated education expenses and using loans, financial aid and current income to cover the remaining two thirds. Make sure you have an emergency savings in place, you are free of credit card debt and you are comfortable with your retirement contribution before you start a college saving plan.
There are numerous options you have to start savings for college. A traditional savings account is a safe option, but interest earnings are minimal and they do not offer you the benefits of accounts specially designed for college savings. 529 plans are college savings accounts that are generally sponsored by states and may offer a variety of investment opportunities. They are the most commonly used college saving strategy because they offer tax-deferred investment growth and tax-free withdraws for qualified education expenses. Keep in mind that there are fees associated with 529 plans, and some are lower than others. Also, if your child decides not to go to college, you lose the tax benefits and there will be tax penalties when withdrawing funds.
Read More: 529 College Savings Plan
Coverdell education savings accounts, Roth IRAs and educational trusts are a few other options you can consider when saving for your child’s college. All options have pros and cons, so it is important to do extensive research to determine the right plan for you and your family.
Lauren Lovett has been with Navicore Solutions for seven years serving as a Certified Credit Counselor and Grant Writer. While in these roles, she has witnessed the positive impact that the organization’s counseling services has on improving the money management skills and economic security of individuals and families in need.