The costs of parenting are substantial. Particularly, the expense of raising a child from birth to 17 years old on average exceeds $300,000, according to the Brookings Institution’s most recent figures. This figure doesn’t take into account the considerable outlay required for tertiary education. It’s generally acknowledged that establishing a college fund for your children is an effective means to ease their transition into successful adulthood. How then, can you go about setting up and saving for your kid’s college fund?
THE EXPENSES ACCOMPANYING HIGHER EDUCATION
Data from an annual survey by U.S. News indicate that average tuition for the 2022-2023 academic year varies from $39,723 for private institutions to $10,423 for public, in-state colleges. Without a substantial shift in the way higher education is funded, these costs are predicted to escalate perpetually. Annual college expenses escalate at approximately double the rate of inflation, a trend expected to persist. The projected tuition, fees, and room and board costs by the time your children or grandchildren are ready for college based on steady 6% college cost inflation rate are given below.
STRATEGIES TO SAVE FOR YOUR CHILD’S COLLEGE FUNDS
Saving for your children’s college funds is a smart financial choice, demanding thorough planning and perseverance. Here’s a guideline on the steps to take:
START EARLY
Initiating savings at the earliest provides your money more time to multiply. Ideally, you should open a college fund soon after the birth of your child. This way, long-term compound interest and routine investments (either monthly or yearly) will permit growth of the funds over time, and less money needs to be set aside to achieve your savings goal.
UNDERSTANDING COLLEGE EXPENSES
The expenses related to college education include various aspects, some of which may be surprising. Being aware of college costs can help compare schools as well as explore options to minimize your expenses. It also assists in determining your target savings.
CHOOSING THE BEST SAVINGS METHOD
Various savings avenues can help you save for college if you start investing early for your child’s future education. Tax-advantaged accounts like 529 plans, which offer potential tax incentives and flexibility for education-related costs, are worth considering. Coverdell Education Savings Accounts (ESA) are another alternative.
AUTOMATING YOUR SAVINGS
Automated deposits into your college savings account can significantly contribute to savings growth. Regular monthly deposits enhance the total savings amount, and the benefit of compound interest fuels more savings. Establishing automated savings now can foster maximum account growth and promote consistent contributions while minimizing the temptation to dip into the savings.
FAMILY CONTRIBUTIONS
Motivate grandparents and other family members to support your college savings goals. These individuals may be willing to contribute on birthdays, holidays, or other special occasions. For birthdays, consider sharing your child’s gift page link in your digital party invitations to offer the option of contributing to the 529 savings account as a gift.
INVESTING PRUDENTLY
Investments should be diversified based on risk appetite and the timeline ahead. Various investment options are available in many college savings plans. Regularly inspect and alter your investment strategy as necessary.
GRANTS AND FINANCIAL AID
Always be on the lookout for possible scholarships or financial aid. Grants equate to free money. Although they can’t replace your savings, they can help alleviate some of the costs.
WHERE TO INVEST YOUR MONEY
The 529 savings plan is recommended for college investing, which is a state-sponsored investment account used exclusively for school savings. It offers tax-free withdrawals for college and K-12 tuition along with other certified educational expenses.
Considering investing in Traditional and ROTH IRAs can also be beneficial. These are tax-advantaged savings accounts for investments in stocks, bonds, and mutual funds. You can choose and alter these investments as your needs and goals evolve.
Custodial accounts under the Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) enable you to establish a trust fund for a minor. After reaching maturity, the child will own the account and can disburse the money as they wish, not necessarily for educational purposes.
FINAL THOUGHTS
The cost of university education is spiraling, but early saving maximizes the returns on investments. After deciding how much of their children’s college education they’re ready to shoulder, parents can establish a plan for their monthly savings. Options exist, like investing in a 529 savings plan, a brokerage account, or a prepaid tuition plan, but the greatest flexibility and tax advantages typically come from a 529 savings plan.
Remember that financial situations vary among families, so it’s important to adapt your savings plan for your children to meet your unique needs and situation. Regular reviewing and adjusting of your plan to meet evolving needs is mandatory.
