Most parents want to set up a college fund for their kids. The challenge is knowing how and when to start. What’s the right age, how much should you save, and which savings plan is best?
The process can be overwhelming. Check out these effective tips to get your college savings plan on track:
1. Start as early as possible
When it comes to choosing the best time to start saving for college, the answer is simple: as soon as possible. Even if you’re pregnant now or intend to start a family soon, it’s not too early.
College is very expensive, and like any long-term financial goal, it requires consistent saving over time. That said, don’t get discouraged if your kids are older and you haven’t started putting money aside.
So, just how high is the cost of college? Read on…
2. Set expectations
According to The College Board’s annual report on college pricing, here’s the average cost of attendance (tuition plus fees) in 2017-2018:
- Public 4-Year College (In-State): $20,770
- Public 4-Year College (Out-of-State): $36,420
- Private Non-Profit 4-Year College: $46,950
And of course, these numbers are only expected to grow with inflation. But remember, you don’t have to accumulate all of this cash on your own; you can let a smart savings plan help. For more on that, see tip number-four below.
3. Choose a monthly contribution you can handle
Every family’s college savings plan will look different. You want to do the most for your children and make a real contribution. However, don’t do it at your own peril.
Avoid borrowing money that you can’t pay back. A high-interest loan or second mortgage may seem like acceptable options to free up additional funds, but they may put you at great financial risk.
4. Select the right savings option for you
529 Plans are a popular way for parents to save for their children’s college expenses. They offer several investment options that will help your contributions grow over time, and your withdrawals are tax-free.
Another popular investment option is a Coverdell Education Savings Account (ESA). Coverdell plans are similar to 529s with one key difference: they let you invest in any stock, bond, or mutual fund. However, they have an annual contribution limit that can cap your savings.
The bottom line is you should choose the savings option that’s right for you—soon. The faster you begin saving, the less expensive college will be for your family.