Having children can be quite pricey. With costs estimated to be over $300,000 for raising a child from birth to the age of 17, according to recent data from The Brookings Institution, it’s a significant financial commitment. This figure doesn’t even include the steep costs of higher education. Establishing a college fund for your children is indeed a great and proven way to aid them in transitioning to a successful adulthood. Wondering how to put money aside for your child’s college fund?
THE EXPENSE OF ATTENDING COLLEGE
As per an annual U.S. News survey, the average tuition for the school year 2022-2023 is anywhere between $39,723 (for private colleges) and $10,423 (for public, in-state colleges). If the current trends persist, these costs will continue to rise. College expenses, rising at double the inflation rate yearly, are likely to persist for the foreseeable future. It’s worth considering what the cost of tuition, fees, and room and board might look like by the time your child is ready for college.
HOW TO SET ASIDE MONEY FOR YOUR CHILD’S COLLEGE FUND
Saving for your children’s college fund is a prudent financial move that demands meticulous planning and commitment. Below are some useful steps to consider:
START EARLY
The earlier you begin saving, the more time your money has to accrue. Ideally, a college fund should be initiated when a child is born. This approach gives the funds more time to grow and doesn’t require you to set aside as much each month or year to reach your savings goal.
GRASP THE COSTS
Understanding the costs of college, including those unforeseen, can help you compare institutions and explore ways to cut down costs. This knowledge will provide you with a savings goal.
PICK THE RIGHT SAVINGS METHOD
To start saving for your child’s college fund early, several savings methods can assist you in investing in their future education. Consider accounts like 529 plans with potential tax benefits and flexibility for education-related expenses. Coverdell Education Savings Accounts (ESA) is another option that’s worth exploring.
MAKE SAVINGS AUTOMATIC
Automatic deposits to your college savings account can boost your savings. Each monthly deposit will increase your total savings, and compound interest will further augment these savings. Automatic savings accounts help ensure regular contributions and curb the temptation to spend the money elsewhere.
RELATED: Which is Better for College Savings: 529 or UTMA
SUGGEST FAMILY CONTRIBUTIONS
Informing family members about your college savings ambitions could lead to contributions for birthdays, holidays or other special occasions. For birthdays, including a link to your child’s gifting page in the digital party invitation could garner contributions to the 529 savings account.
INVEST WISELY
Consider diversifying your investment strategy based on your risk capacity and time horizon. Regularly review and adjust your investment approach as necessary.
RELATED: 7 Ways To Teach Your Kids Good Money Habits
CONSIDER SCHOLARSHIPS AND FINANCIAL AID
Keep an eye out for potential scholarships or financial aid opportunities. These can provide a financial boost, albeit they can’t replace savings, they can help cover some costs.
WHERE SHOULD YOU INVEST YOUR MONEY?
529 SAVINGS PLANS
These are especially beneficial when investing for college education. 529 savings plans or a state-sponsored investment account dedicated solely for school-related expenses. The returns from these can be utilized for college and K-12 tuition and other qualifying educational expenses tax-free.
TRADITIONAL AND ROTH IRAS
You could also consider placing your money into a Traditional or Roth IRA. An IRA is a tax-advantaged savings account where investments are kept.
RELATED: How to Maximize the Benefits of Your Retirement Account
CUSTODIAL ACCOUNTS
Uniform Gifts to Minors Act (UGMA) accounts and Uniform Transfers to Minors Act (UTMA) accounts are custodial accounts. As a trustee, you manage the account until the child turns 18 to 21 years-old (it varies from state to state). When they reach this age, they own the account and are free to use the money as they wish.
SUMMARY
The price of higher education is increasing exponentially. However, parents should start saving as early as possible to yield better returns from their investments. After ascertaining how much of their child’s college education they’re willing to fund, they can formulate a plan for their monthly contributions. Parents have several investing options, including 529 savings plans, brokerage accounts, or prepaid tuition plans. However, 529 savings plans usually provide the most tax benefits and flexibility. It’s critical to remember that all financial situations are unique. Consequently, your plan for your child’s college fund must be tailored to your specific circumstances. Regularly reviewing and updating your strategy is also crucial as your family expands and your financial situation evolves.
