Parenting is clearly not cheap. Figures from The Brookings Institution indicate that the cost of bringing up a child from infancy to 17 can exceed $300,000. This staggering amount doesn’t even factor in the substantial costs of post-secondary education. Securing a college fund for your child is a proven approach to enable a smooth transition into successful adulthood. Here’s what you should know about generating that essential college fund for your child.
THE TRUE EXPENSE OF COLLEGE
Based on U.S. News’ yearly survey, mean tuition fees for the academic year 2022-2023 were observed to be $39,723 for private colleges and $10,423 for public, in-state colleges. Granted that current payment procedures remain, the cost of college education is expected to continually rise.
The annual rate of increase for college costs is usually twice as fast as the general inflation rate, a trend that is bound to persist in the foreseeable future. With the assumption of a steady 6% college cost inflation rate, here’s how much you could anticipate paying for tuition, fees, and accommodation each year by the time your progeny are college-bound.
Here are several ways you might want to consider when saving for your child’s college education:
HOW TO FUND YOUR CHILD’S COLLEGE FUTURE
Establishing college funds for your children emphasizes prudent economic foresight, meticulous planning, and commitment. You can start with these practical measures:
BEGIN AS EARLY AS POSSIBLE
Start saving early – the sooner, the better. Ideally, beginning to put money into a college fund when your child is born allows your money more time to grow. With the magic of compounded interest, regular and strategic investments result in significant growth over time, requiring you to save less per month or year to reach your target.
APPRECIATE THE EXPENSES
College costs encompass various aspects, including unexpected ones. A comprehensive understanding of these costs empowers comparison across different schools and the exploration of viable options to reduce expenditures and establish a concrete savings target.
SELECT THE APPROPRIATE SAVINGS METHODS
For early savings towards your child’s future education, there are various methods to help you invest. You might want to consider tax-advantaged accounts such as 529 plans which offer potential tax benefits and flexibility for education-related expenses. Coverdell Education Savings Accounts (ESA) are another option worth considering.
ENFORCE AUTOMATED SAVINGS
Establishing automatic transfers into your college saving account yields two benefits – it ensures regular contributions and discourages the temptation to divert the money to other uses.
INVITE FAMILY SUPPORT
Enlighten family members such as grandparents about your educational saving goals. They may be enthusiastic to chip in during birthdays, holidays, or other special occasions.
CHOOSE YOUR INVESTMENTS CAREFULLY
Take into account risk tolerance and time horizon when deciding on your investment strategy. Many college savings plans offer various investment options, so it’s wise to regularly evaluate and adjust your investment strategy when necessary.
SEARCH FOR SCHOLARSHIPS AND FINANCIAL AID
Be on the lookout for scholarships or financial aid. Although they don’t replace your savings, they can relieve some of the burdens.
WHERE TO INVEST
Two attractive investment options to consider are a 529 savings plan and individual retirement accounts (IRAs). Both offer tax advantage saving benefits. The 529 savings plan, for example, allows for withdrawals for college and K-12 training costs to be made without the burden of income tax on the investment gains.
Custodial accounts (UGMA/UTMA) are worthy considerations. These permit funds or assets to be placed in trust for a minor until they come of age, though they are not dedicated to educational expenses.
IN SUMMARY
Despite the rapid rise in post-secondary education costs, parents must begin saving as early as possible to optimise potential investment profits. Once the share of a child’s education costs they are prepared to bear is decided, a monthly contribution can be planned. The most appealing saving option in terms of tax relief and flexibility is a 529 savings plan.
Remember that a family’s financial circumstances are unique. Saving plans have to be formulated based on your financial health and circumstances. Mechanisms should be put in place to periodically assess and adjust your strategy to accommodate growth in family size and changes in financial status.
