The costs of raising a child can become quite hefty; it is estimated that the expenses related to bringing up a child from birth to the age of 17 can exceed $300,000 according to recent data gathered by The Brookings Institution. This estimation does not include the significant financial investment of attending a higher education institution. Establishing a college fund for your children is an effective means of securing their future success. Interested in learning how to prepare financially for your child’s academic pursuits? Let’s dive in:
THE RISING COST OF COLLEGE EDUCATION
Data collected from the U.S. News annual survey indicates that average tuition fees for the 2022-2023 academic period span from $39,723 (for private colleges) to $10,423 (for public and in-state colleges). Given the current economic trends, we can well anticipate these college costs to rise in the future.
Approximately increasing twice as fast as the general inflation rate each year, the amount of college costs is predicted to persist in this steadily climbing trend for the foreseeable future. As the education-related expenses continue to rise, prospective students and their families are expected to prepare themselves financially to make considerable payments towards college tuition, fees, and accommodation expenses.
If you have been seeking the right ways to save for post-secondary education, here are some possibilities:
WAYS TO PREPARE FOR YOUR CHILD’S COLLEGE FUNDS
Deciding to save for your children’s academic funds is a prudent financial decision that demands meticulous planning and commitment. Here are some actionable steps you can follow:
START AS EARLY AS POSSIBLE
Starting to save early gives your money sufficient time to accumulate. Ideally, establishing a college fund by the time your child is born is considered best. Regular contributions combined with compound interest enable your money to grow over a longer span, relieving the pressure of having to save a large amount each month or year.
UNDERSTAND POSSIBLE EXPENSES
The total cost of a college education traverses beyond the tuition fees and can include a multitude of items, some of which you may not have anticipated. Awareness of these costs will help you compare institutions and search for ways to economize. This will help you accurately determine a feasible savings target.
CHOOSE AN OPTIMAL SAVINGS PLAN
If you aim to start saving for your kid’s further education while they are still young, various savings plans can assist you. You may explore tax-favoring accounts like 529 plans and Coverdell Education Savings Accounts (ESA), which could offer potential tax benefits and flexibility for education-associated expenses.
AUTOMATE SERVICES
Configuring automatic transfers into your college savings account will ensure consistent contributions, preventing the temptation to use this money elsewhere, and the allowance to grow your savings.
ADD FAMILY PARTICIPATION
Invite grandparents and other close relatives to participate in your saving endeavour. They may be willing to contribute during birthdays, holidays, or special events.
SMART INVESTMENTS
Invest wisely based on your risk tolerance and time period. Various college saving plans offer multiple investment options. Regularly review and adjust your investment approach as necessary.
APPLY FOR SCHOLARSHIPS AND AID
Stay vigilant about scholarships or financial aid opportunities. Although these resources will not substitute your saving effort, they can certainly help reduce some of the costs.
WHERE TO INVEST YOUR MONEY?
A 529 savings plan is the ideal investment for college. It’s a state-sponsored investment account specially designed for educational expenses. The funds can be withdrawn for college and K-12 tuition, and other qualified educational expenses, and the gains from this investment are tax-free.
Aside from 529 savings plans, investing your money in Traditional and ROTH IRAs is another option. IRAs offer additional benefits, such as tax-advantaged savings spaces for investments like stocks, bonds, and mutual funds.
Lastly, custodial accounts, specifically Uniform Gifts to Minors Act (UGMA) accounts, and Uniform Transfers to Minors Act (UTMA) accounts, are other promising investment options. Even though once the minors reach the age of majority (18 to 21), they gain complete control and can use the account for whatever they wish.
CONCLUSION
With rapidly increasing costs of higher education, it’s crucial for parents to start saving early. Once a decision is made about how much of the education costs parents wish to bear, they can determine a structure for monthly contributions.
A 529 savings plan, brokerage account, or prepaid tuition plan could be the chosen investment medium, with a 529 savings plan offering the most tax benefits and flexibility.
Always remember, each family’s financial situation is unique, and so the savings plan must be personalized to accommodate different circumstances. Regular reviews and strategy amendments as your family expands and financial situation evolves is highly recommended.
