How and When to Start Saving for Your Child's College Education
We are living in a time in our world where the future is unknown, and thinking beyond the here and now can be difficult to do. But the future is inevitable, and taking steps towards saving for your child's education today will make sure that their tomorrow is the best it can be. Putting money away for your child's education can help them avoid costly student loans, which has morphed into a 1.6 trillion dollar crisis in America.
Although the financial path academia will take in the post-COVID-19 era is unknown, the cost of tuition has been on the rise for years, and it's likely that a significant reduction in higher education costs won't happen for some time. Forty-four million Americans are carrying student loan debt, and surveys have shown that the impact of loans can shape educational experiences for students and even affect their mental health. Student loan debt has also deterred many from buying property, pursuing entrepreneurial endeavors, and choosing to get married.
Saving Early Makes a Big Difference
Millennials and families with small children may not be thinking about setting up a college fund for quite some time, but saving as early as possible allows parents to take advantage of compounding interest that will increase returns. Working with a Financial Planner to map out an action plan that outlines the exact amount of monthly contributions that you need to meet your goal should be done as soon as possible in order to get the most out of your investment strategy.
Saving for college can be a family affair, and a percentage of gifts and other lump-sum amounts that are received should be part of your savings strategy. Teaching children healthy money habits and empowering them to plan for their future will help progress funding goals and foster ownership.
Getting Started
Deciding on the right type of account you need to house your assets requires exploring all of your options before making a final decision. Storing cash in a shoebox or piggy bank comes with a substantial amount of risk. If the cash is stolen or destroyed, then there is no way to recoup the funds you've saved. Opening an investment or savings account is a considerably safer option. A traditional savings account is a better strategy, but there is little to no opportunity to grow your funds. Popular college savings account options that will increase your return would be a 529 College Savings Plan, Uniform Transfer to Minors Act (UTMA)/Uniform Gift to Minors Act (UGMA), or Custodial Account. A regular Roth IRA account could also work effectively depending on what flexibility you are seeking and your age at the time your child begins their college career.
Once you've decided on the type of account that fits your needs, make realistic and achievable goals. Exploring all varieties of available financial aid options as your child grows (including work-study and being employed by a school) is also advisable. Grants, scholarships, and cheaper college options that allow your children to live at home will decrease costs. In the end, your efforts will build a future for your children and generations to come.
A Debt Free Degree is Possible
Saving for college can be an overwhelming task, especially when parents sit down to evaluate how to balance mortgage payments, other debt, and possibly their own student loan obligations. A balanced plan with realistic goals is the plan that will work in the long run. The key to success is consistency, and families should start small and work from there. Personal finance apps such as Mint, Wally, and Acorns can help you manage your money and allocate your spending in a way that enables you to prepare for your family's future.