The costs associated with raising children can add up quickly. Based on data from The Brookings Institution, the average cost of raising a child from birth to 17 years old is over $300,000 – and that doesn’t include the significant costs of tertiary education. Thus, setting up a college fund for your kids is a great way to ensure they transition successfully into adulthood. But how do you save for your child’s college fund?
Understanding the Price of Higher Education
Per the yearly survey by U.S. News, for the academic year of 2022-2023, the average tuition fees ranged from $39,723 for private colleges to $10,423 for public, in-state colleges. Current trends suggest these costs will keep rising, with most tuition fees increasing approximately twice as fast as the general inflation rate each year. So, let’s explore how to save for college:
Strategies for Saving for Your Child’s College Fund
Saving for college involves thoughtful planning and commitment. Here are some steps to follow:
Begin as Soon as Possible
The sooner you start saving, the more your money can grow over time. The best time to start is when your child is born, making regular deposits to take advantage of compound interest which allows your money to accumulate and significantly grow over time.
Recognize the Full Spectrum of Costs
Knowing the total costs involved in tertiary education allows you to make effective comparisons among schools and find ways to reduce your expenses. This will give you a clear savings target.
Select the Appropriate Savings Approach
There are several approaches to begin saving for your child’s college education. 529 plans and Coverdell Education Savings Accounts (ESA) are tax-advantaged accounts designed for educational expenses and are worth considering.
Ensure Regular Savings
Establishing automatic deposits to your chosen savings account will help grow your college savings over time. This approach encourages consistent contributions and lessens the chance you will spend the money elsewhere.
Enlist Family Support
Gramdparents and other family members might be willing to contribute towards your college savings goals during milestones, like birthdays and holidays.
Invest Judiciously
By applying a diversified investment strategy premised on your risk tolerance and investment time horizon, your savings can grow sustainably.
Search for Scholarships and Financial Aid
Always be on the lookout for scholarships or financial aid offerings; free money can help mitigate some of your costs.
Investment Options: Where to Put Your Money
A 529 plan, a kind of state-sponsored investment account, is a wise choice for those saving for academic expenses, offering potential tax advantages and plenty of options to diversify your portfolio.
Traditional and Roth IRAs are other options worth considering; these tax-advantaged accounts can house a variety of investment options including stocks, bonds, and mutual funds.
For potential maximum tax benefits and flexibility, a 529 savings plan often proves to be the best option, but this depends heavily on individual circumstances. As your family and financial situation evolve, it’s essential to continually review and adjust your strategy.
Takeaway
With rising college costs, starting to save early can pay off in greater investment returns. Once the percentage you’re willing to contribute towards your child’s education is decided, you can create a manageable monthly savings plan. Keep in mind that every family’s situation is unique, so tailor your savings strategy to fit your individual needs and circumstances.
