Raising children can be a costly endeavor. The Brookings Institution’s latest data suggests that the average cost of bringing up a child from birth till they reach 17 surpasses $300,000. This figure doesn’t even consider the substantial expenditure of higher education. Therefore, setting up a college fund for your kids often aids their transition into successful adulthood. So, how can you prepare for your child’s college fund?
COLLEGE EXPENSES EXPLAINED
The annual survey by U.S. News indicates that the average cost of tuition for the 2022-2023 academic year ranged from $39,723 for private colleges to $10,423 for in-state public colleges. With the current payment practices for educational expenses, the price of college is set to escalate further. College costs follow a trend of approximately doubling the annual inflation rate. You can anticipate the following yearly college expenses (tuition, fees, room, and board) based on a steady 6% college inflation rate at the time your kids or grandchildren are ready for college.
OPTIONS TO SAVE FOR COLLEGE EXPENSES
Here are some strategies to consider when saving for higher education:
PLANNING FOR YOUR CHILD’S COLLEGE FUND
Beginning to save for your child’s college fund early and understanding the associated costs can be beneficial for proper planning and investing wisely. Useful measures to adopt include starting savings early, understanding the costs, and choosing the right savings vehicle.
START EARLY
Incorporating regular investments and compound interest can allow your money to grow if you start saving as soon as your child is born. This will also reduce the hefty amount you’d need to save monthly or annually.
KNOW THE COSTS
Having a clear understanding of college costs will help you identify your target savings amount and explore options to lower your overall expenses.
SELECT THE RIGHT SAVINGS OPTION
Saving for your child’s education can take different forms. You can explore tax-advantaged accounts like 529 plans or Coverdell Education Savings Accounts. Automated savings and encouraging family contributions can also boost your savings significantly.
INVEST SMARTLY
Adopt diversified investment strategies based on your risk tolerance and financial goals. Regular reviews and adjustments to your investment strategy will also keep you on track.
EXPLORE SCHOLARSHIPS AND FINANCIAL AID
Many scholarships and financial aid options can help alleviate some of the costs of college education.
INVESTMENT VENUES
Consider 529 savings plans for their tax benefits and exclusive educational expense uses. Traditional and Roth IRAs, along with custodial accounts like UGMA and UTMA, can also aid in achieving your savings goals.
CONCLUSION
Parents should begin saving for their child’s college education as early as possible given the rapidly increasing costs. Creating a customized savings plan depending on your unique financial situation and readiness to cover a percentage of your child’s educational expenses can be beneficial. Regular reviews and adjustments to your savings strategy, depending on evolving financial conditions, could make your journey smoother.
