Child-rearing expenses can skyrocket, especially when considering the cost of post-secondary education. The Brookings Institution has estimated the cost of raising one child from birth to 17 to be over $300,000, and this doesn’t factor in the additional cost of tertiary education. Establishing a college fund is an effective strategy to secure a brighter future for your kids. Interested in learning steps to create a college fund?
UNDERSTANDING COLLEGE EXPENSES
The tuition fee for the academic year 2022-2023, based on a survey by U.S. News, averages around $39,723 for private institutions and $10,423 for public in-state colleges. Given that there’s no change to the fee payment strategy, college expenses are likely to rise annually, generally at double the inflation rate. By understanding future costs, using an approximate 6% college cost inflation rate, you can determine what saving strategies to use:
STRATEGISING ON KIDS’ COLLEGE FUND
Beginning your savings plan for your child’s college fund as early as possible is a good financial move that necessitates long-term planning and commitment. Below are few methods you may want to consider:
START YOUNG
The sooner you accumulate savings, the more time they have to grow. Ideally, the birth of your child is the perfect moment to initialize their college fund. By investing on a regular basis, either monthly or yearly, the funds have more time to expand due to compound interest.
GRASP THE EXPENSES
The college tuition is inclusive of several items, including expenses you won’t anticipate. By having a good understanding of these costs, you can explore ways to lower your expenses. This way, you’re able to set a tangible savings target.
ADOPT RIGHT SAVINGS APPROACH
To begin saving early for your child’s education, consider accounts such as 529 plans or Coverdell Education Savings Accounts (ESA) which provide tax benefits and offer flexibility for educational expenditure.
AUTOMATE YOUR SAVINGS
Setting up an automatic deposit system for your kid’s college savings account can allow you to steadily increase your savings. An automatic savings system ensures regular contributions, warding off the temptation to spend it elsewhere.
ENCOURAGE FAMILY CONTRIBUTIONS
Spread the word to grandparents and relatives about your plans for higher savings. They might want to chip in during special occasions or yearly events.
INVEST SMARTLY
Develop an investment strategy keeping in mind your risk tolerance and time horizon. Regularly reviewing and adjusting your investment strategy is crucial.
EXPLORE SCHOLARSHIPS AND FINANCIAL AID OPTIONS
Ensure to keep track of scholarship opportunities or financial aids, they can act as a supplementary source for your child’s college fund.
WHERE SHOULD YOU COMMIT YOUR INVESTMENTS?
529 savings plans and state-sponsored investment accounts are apt choices for college funds. 529 savings plans allow you to withdraw money for educational expenses without being levied on the income gained from the investments.
Conventional and Roth Individual Retirement Accounts (IRAs) are also worth considering. It’s a tax-advantaged savings account which can include stocks, bonds, and mutual funds as part of the investment.
Custodial accounts such as Uniform Gifts to Minors Act (UGMA) accounts and Uniform Transfers to Minors Act (UTMA) accounts are options where the child has the full freedom to use the money in any way they wish at maturity.
CONCLUSION
Parents are encouraged to set up a college savings plan as early as they can to benefit the most from their investments. It is crucial to assess what proportion of their child’s college expenses they are willing to cover, then devise a plan for their regular contributions. Although 529 savings plan, brokerage account, or a prepaid tuition plan are few of the saving options, most parents find the tax benefits and flexibility of a 529 savings plan to provide the most value. It is important to remember that every family’s financial situation varies, hence it’s necessary to adjust the savings plan in accordance to specific requirements and changes in circumstances.
