My daughter is only three-years-old, but I have been contemplating her future since before she was even born. As a mom, I want her to be healthy and happy. As a teacher, I know the importance of education and I want her to find success through education. However, making these kinds of choices when it comes to your child is huge!
Thankfully, we have a guest today who knows quite a bit about college, since she is a college student herself! Lauren Davidson is a senior at the University of Pennsylvania and a freelance writer. Today, she will provide all of us parents with tips on the best ways to start saving for college early!
How to Save for College Early
Guest Post By Laur Davidson
Your child is quickly growing and you have come to the realization that they will be ready for college in no time. Whether your child was just born or is 10, you will at some point need to think about college and make the decision as to whether you will help your child pay for his or her education. This is a big decision and one that needs to be made because the earlier you start to save, the better. Below, we will discuss ways for you to start saving for your child’s college early on.
Start a Budget for College Early On
Let’s face it. College is expensive. In fact, the average tuition at a public college is about $15,000 per year and rises from there for private institutions. Out of state students can typically expect to pay more for tuition. If you think that sounds like a lot of money, by 2030, the estimated cost of tuition is sad to be about $44,000 at a university. Woah!
While your head still tries to wrap itself around those numbers, let’s talk a moment about a budget. You should factor saving for your child’s education into your budget. To start, get the total amount of income you make per month and write it down. Of course, use the amount you receive after taxes. From there, you will need to determine how much your monthly expenses are and subtract them from the amount of income you receive. Once you have paid all your bills, you can then determine an amount you want to set aside for your child’s education.
From there, you will need to determine how much your monthly expenses are and subtract them from the amount of income you receive. Once you have paid all your bills, you can then determine an amount you want to set aside for your child’s education.
If you are unsure of the amount you want to set aside, determine what you are comfortable with. If you were to save $50 per month for 18 years, you would have saved a total of $10,800. Think of it this way, the more you put away today reduces the amount of student debt you or your child accumulates later on. Some interest rates breach 12 percent and repaying high-interest debt can be quite problematic down the road.
Take Advantage of 529 Plans
A 529 plan is another wonderful way for you to save for your child’s educational costs. If you are unsure of what a 529 plan is, it is a tax-advantaged plan that allows you to make contributions to it at a rate that is affordable to you. Once your child is ready to attend school, they can then use the money inside of the account at approved colleges.
If you ever need to cash out the plan, you can, but do be advised that there will be penalties and taxes imposed on the amount.
Consider a Prepaid College Plan
If you are looking for a different type of college savings plan for your child, consider a prepaid account. This is a great way to save money later down the road. This plan is great for those parents who have the money to put into the account now. The way a prepaid plan works is that you pay for college now but use it later.
Therefore, if the average tuition for one year in college is $10,000, you would pay that amount today. When your child is ready to go to college, they will have one year of schooling paid, even if the amount of tuition has increased ten-fold.
The money in your child’s prepaid college account can be used for college-related expenses at any approved colleges.
No matter what your child’s age, you should start to save for their college fund today. You will find that it becomes much harder to save later down the road. Many people will choose different plans that allow them to stack money into an account that is reserved for use later such as the prepaid plan or a 529 plan. No matter what plan you choose, you want to make sure you make the payments required or contribute money to the account to grow the balance.
If you are in a position where you can deposit a large amount of money towards your child’s college fund, you may want to choose a prepaid account, as you can purchase college tuition now, which means you do not have to worry about the inflated prices in 10 years or more.
Unfortunately, college is expensive, but the earlier you start to save, the better. Your child will appreciate the help you are able to give, as it will help them avoid student loans in the future.
Love Lauren’s Post? Be sure to check out her website here.