Having children can be costly, with the average expenditure for raising one child from birth until the age of 17 exceeding $300,000, as per The Brookings Institution’s latest data. This estimate doesn’t even consider the significant costs of higher education. Ergo, establishing a college fund for your child can greatly aid their successful transition into adulthood. Yet, how does one start with a college fund?
THE PRICE TAG OF COLLEGE EDUCATION
A U.S. News annual survey shows that average tuition fees for the academic year of 2022-2023 hover around $39,723 at private colleges and $10,423 at public, in-state colleges. Unless there’s a seismic shift in education financing, these costs are bound to escalate. College expenses generally rise about double the inflation rate annually – a trend anticipated to persist. Hence, by the time your children or grandchildren are college-age, anticipate paying more for tuition, fees, and accommodation, presuming a consistent 6% tuition inflation rate.
With a view to sparing for higher education, here are some alternatives:
SETTING UP A COLLEGE FUND FOR YOUR CHILD
Putting money away for your children’s college funds is a judicious financial step that necessitates thoughtful planning and commitment. Here are some effective strategies you can employ:
START EARLY
The sooner you begin saving, the longer your money can accumulate. The optimal time to inaugurate a college fund is at your child’s birth. With compound interest and regular contributions, your savings have a chance to grow over an extended time span, reducing the amount you need to allocate monthly or yearly to meet your savings target.
GET A GRASP OF THE EXPENSES
University costs encompass an assortment of items. Fully understanding these expenses enables you to evaluate schools and discover ways to reduce your outlays, thereby arriving at a target savings goal.
PICK THE RIGHT SAVINGS VEHICLE
If you aspire to commence saving early for your child’s college fund, investigate tax-privileged accounts like 529 plans or Coverdell Education Savings Accounts (ESA), which offer potential tax benefits and adaptability for educational expenses.
AUTOMATE SAVINGS
Setting up automatic payments into your college savings account can be a game-changer. Monthly deposits increase your total saved amount, and compound interest further boosts your savings. Automating now allows your savings to flourish the most, ensuring steady contributions and reducing the urge to spend the money elsewhere.
ADVOCATE FOR FAMILY CONTRIBUTIONS
Inform relatives of your college-saving aspirations. They may be inclined to contribute during birthdays, holidays or other special occasions. For birthdays, you can insert the link to your child’s gift page in your digital party invite.
INVEST WISELY
Contemplate a varied investment strategy rooted in your risk tolerance and saving timeframe. Review and adjust your investment plan as necessary.
LOOK FOR SCHOLARSHIPS AND FINANCIAL AID
Stay alert for potential scholarships or financial aid. While these can’t replace your savings, they can assist in covering some costs.
WHERE TO INVEST YOUR MONEY?
Consider opening a 529 savings plan or a state-backed investment account intended for education funding. Additionally, Traditional and ROTH IRAs, along with custodial accounts such as UGMA and UTMA accounts, can be beneficial.
In conclusion, while the cost of education is skyrocketing, starting savings early can maximize returns on investments. Parents can map out a plan considering what proportion of their child’s college tuition they’re open to covering. It’s key to remember that every family’s financial situation differs, hence it’s essential to customize your plan as per your personal context, and regulary review and adjust as required.
