Raising children comes with considerable costs, with the average price of raising a child from birth to 17 years old exceeding $300,000, as per the latest figures from The Brookings Institution. This figure doesn’t even factor in the potential costs of further education. As such, establishing a college fund for your child can be a proactive measure towards assisting them in attaining successful adulthood. Wondering how to approach saving for your child’s college fund?
THE COST OF COLLEGE EDUCATION
The average tuition fee for the school year 2022-2023, as per U.S. News’ yearly survey, is $39,723 for private institutions and $10,423 for public, state-side colleges. With the current mode of education financing, it can be expected that these fees will only continue to rise. In fact, the annual inflation rate for college costs is approximately double the typical rate, a trend that’s projected to persist. Considering a 6% steady college cost inflation rate, here’s a projection of potential costs for tuition, fees, and accommodation when your children or grandchildren are prepared for college:
If you’re exploring means to save for college, here are some suggestions:
STRATEGIES TO SAVE FOR YOUR CHILD’S COLLEGE FUND
Initiating a college fund for your children is a financially sound decision that calls for thoughtful planning and commitment. Here are a few practical steps:
BEGIN SAVING EARLY
The sooner you begin saving, the more room your money has to grow. Ideally, starting a college fund when your child is born allows for maximum growth through compound interest. Regular contributions, even in smaller amounts, can amass significant funds over a lengthy period.
UNDERSTAND THE COSTS
Comprehending college costs allows for effective budgeting, as they include a range of items, some of which you may not initially consider. Knowing these costs can help you assess schools, find means to reduce expenses, and set a target savings goal.
SELECT THE APPROPRIATE SAVINGS VEHICLE
There are numerous savings vehicles designed to help you save for your child’s future education. Vehicles like 529 plans offer potential tax benefits and flexibility for education-related costs. Another option is the Coverdell Education Savings Accounts (ESA).
AUTOMATE YOUR SAVINGS
Automatic deposits into your college savings account can help your savings to grow steadily. Consistent contributions and the power of compound interest will build up your savings over time. It also helps to curb the tendency to spend the money elsewhere.
ENCOURAGE FAMILY GIFTS
Involve family members like grandparents in your college savings plans. They might willingly contribute towards it during birthdays, holidays, or special occasions
INVEST WISELY
Opt for a diversified investment strategy based on your risk acceptance and investment timeline. College savings plans offer a variety of investment choices. Regular evaluation and adjustment of your strategy is essential.
VISIT SCHOLARSHIPS AND FINANCIAL AID
Be open to scholarships or financial aid opportunities which can reduce some of the costs. While they can’t replace your savings, they can be handy to offset some expenses.
WHERE TO INVEST YOUR MONEY?
529 SAVINGS PLANS
Consider investing in a 529 savings plan, a state-sponsored investment account designed exclusively for education-related investments. You can withdraw the money for college and K-12 tuition and other qualified educational expenses without paying income tax on any investment gains.
TRADITIONAL AND ROTH IRAS
You may also consider a Traditional or Roth IRA. These accounts include a variety of investments, such as stocks, bonds, and mutual funds.
CUSTODIAL ACCOUNTS
The Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts allow you to put money and/or assets in a trust for a minor. Once the child becomes an adult, they gain ownership of the account and can use the funds however they wish.
IN CONCLUSION
The rising cost of college necessitates early and committed saving to ensure maximum return on investment. After deciding what proportion of their child’s college education they’re willing to finance, parents can develop a monthly contribution plan. The most flexible and beneficial savings plans are likely to be 529 savings plans.
