Bringing up children can be costly. The Brookings Institution’s latest data suggests that, on average, the expenditure for one child from birth until 17 years of age amounts to more than $300,000. This figure doesn’t take into consideration the significant cost of higher education. Setting up a college fund for your kids is generally an effective way to support their smooth transition into successful adulthood. Interested in learning how to save for your child’s college fund?
THE EXPENSE OF ATTAINING HIGHER EDUCATION
A yearly survey by U.S. News indicates that average tuition for the 2022-2023 academic year varied from $39,723 for private colleges to $10,423 for public, in-state colleges. Without significant changes in educational financing, these costs are set to increase. College costs usually rise annually at roughly double the rate of inflation. Under a steady 6% college cost inflation rate, here’s an idea of what you could be expected to pay for yearly tuition, fees, and room and board by the time your children or grandchildren are college-ready. Considering saving for college? Here are some suggestions:
STRATEGIES TO SAVE FOR YOUR CHILD’S COLLEGE FUND
Putting aside money for your children’s college education is a savvy financial decision that calls for meticulous planning and commitment. Here are some useful guidelines:
START ASAP
The sooner you start saving, the more time your money has to multiply. Ideally, it’s best to begin a college fund when a child is born. With compound interest and consistent investments made annually or monthly, the fund has a chance to increase over a more considerable period.
KNOW THE COSTS
College expenses can incorporate various items, including some you might not expect. By understanding these costs, you can compare schools and investigate ways to reduce your expenses. This will inform your savings goal.
SELECT THE APPROPRIATE SAVINGS METHOD
If you’re eager to start saving for your child’s college education early on, specific savings methods can assist you in investing for their future. Consider tax-advantaged accounts like 529 plans that offer potential tax benefits and flexibility for education-related expenses.
AUTOMATE SAVINGS
Automating deposits into your college savings account will allow your savings to multiply. Each monthly deposit will increase your total savings, and compound interest will yield even more savings.
ENCOURAGE FAMILY CONTRIBUTIONS
Inform your family about your college savings goals. They might be willing to assist on birthdays, holidays, or special occasions.
INVEST SMARTLY
Think about a diversified investment strategy based on your risk tolerance and time frame. Regularly review and adjust your investment strategy as necessary.
EXPLORE SCHOLARSHIPS AND FINANCIAL AID
Monitor potential scholarships or financial aid. While these won’t replace your savings, they can help decrease some of the costs.
WHERE SHOULD YOU INVEST?
529 SAVINGS PLANS
If you’re investing for college, consider a 529 savings plan or a state-sponsored investment account exclusively used for school investment.
TRADITIONAL AND ROTH IRAS
Also consider Traditional and ROTH IRAs. An IRA is a tax-advantaged savings account where you keep investments like stocks, bonds, and mutual funds.
CUSTODIAL ACCOUNTS
Uniform Gifts to Minors Act (UGMA) accounts and Uniform Transfers to Minors Act (UTMA) accounts allow money and/or assets to be put in trust for a minor.
THE BOTTOM LINE
Although college costs are swiftly increasing, it’s advised that parents initiate saving as early as possible to maximize their investments’ returns.
Remember that every family’s financial situation is unique, so it’s important to adapt your college fund saving strategy to fit your particular needs and circumstances. Regularly evaluate and adjust your plan as your family expands and your financial situation evolves.
