The sooner you start your child's college financial planning, the better off you'll be when your child or grandchild is ready for freshman year. So how much will you need to save for college? According to the nonprofit College Board, it now costs more than $32,000 annually, on average, to attend a private college or university. At public colleges and universities, the average annual cost is now more than $13,000. It's also important to note that college prices have been rising at rates significantly higher than the nation's overall rate of inflation in recent years.
The best time to start to save for college is when the future student is born. Not only will a longer time frame allow you to set aside more money by the time college starts, but it also lets you adopt a more aggressive investment strategy as you save for college. For example, stock investments have historically provided the best long-term average annual returns but also the greatest potential for short-term risk. Therefore, the more time you allow yourself to save for college, the more you may be able to harness the power of the stock market to generate additional wealth.
Teaching kids how to save for college
You can't save for college effectively if you don't know how much you'll need to spend. Although average annual prices provide a general idea of how much you might need to set aside, they may not be indicative of your family's actual financial experience. As a result, it's important to get the kids involved in your initiatives to save for college. Begin by asking about their educational goals: Have they thought about what they want to study? Can they accomplish those goals at a local public college, or are they hoping to live on campus at a private college in another state? Once they've answered those questions, have them find out the prices at each school they have in mind. With that information in hand, you'll have a much better picture of how much you'll need to save for college.
Your children can also assist in your efforts to save for college by identifying and pursuing the opportunities for financial aid that may be available to them. According to the College Board, US undergrads receive approximately $100 billion in financial aid each year. To find out how to access such aid as you save for college, have your college-bound high schooler schedule an informational meeting with a guidance counselor or school librarian.
Finding extra money to save for college
As you begin to save for college, you may find it necessary to start spending less money and saving more on a weekly basis. Involve the entire family. Explain to your children that eating out at their favorite restaurant once a month instead of two or three times a month could free up hundreds of dollars annually to save for college. As parents, you can also lead by example. Why pay top dollar for a brand-new car when a well-maintained used vehicle may cost $10,000 less? That's a lot of money you could save for college.
There are plenty of other ways you can find more money to save for college. If you have several high-interest credit card balances, consider transferring those debts to a single, low-interest account. Try to pay more than the minimum amount due each month. You could save hundreds, or even thousands, of dollars in the long run.
College savings accounts
The US Government has authorized two types of tax-advantaged investment accounts designed to help you save for college: Section 529 College Savings Plans (529 plans) and Coverdell Education Savings Accounts (CESAs). Your contributions to these plans aren't deductible, but 529 plans and CESAs both allow tax-free withdrawals to pay for qualified education expenses.
You can also save for college by contributing to a Section 529 prepaid tuition plan. This type of account doesn't offer tax breaks on your investments, but it does allow you to pay tuition at today's rates no matter how old your child is. In other words, if you just had a baby, and if tuition at your local public college is now $10,000 annually, you would be allowed to pay for the baby's future college costs at today's rate: $10,000 per year. No matter how much tuition subsequently rises, you won't have to pay an extra penny when the child is old enough to start taking classes. This can greatly reduce the amount of money you may need to save for college, but it limits your child's college choices, as only some schools offer prepaid tuition plans.
 | If you're feeling overwhelmed by student loans or just want to consolidate so you don't have to make several loan payments every months, student loan consolidation programs are a great way to address your financial concerns. Which student loan consolidation program is best for you? Consider these points. |
 | A Coverdell Education Savings Account (ESA) is a special account, qualified by the Internal Revenue Service, which provides tax incentives for saving for education. Contributions to a Coverdell account are not tax-deductible, but tax-free earnings can accumulate in the account. And distributions from the account are tax free when they are used to pay for qualified education expenses, including elementary, secondary school, college and other postsecondary education. |
Smart college financial planning starts when your child is still in diapers. That might sound extreme, but and your child will be much happier if you establish a nest egg early and give it time to grow. |
When you are a college student, you always deal with money problems because college is expensive. So here are some of my tips about saving money in college. Those tips come from my real experience, so I hope it will help you somehow! |
Parents (or any young adult for that matter) looking to establish the best financial footing for the future should consider four key savings areas: cash savings, life insurance, 401(k) & IRA, and 529 college savings accounts. |
