Happy National College Savings Day– celebrated on May 29th (5/29) each year to promote financial planning and the value of 529 plans. As college costs can add up quickly, parents and families should consider saving early to prepare for those future educational expenses and avoid student loan debt. No matter where you are on the journey, let’s take a look at how you can save for college.
College Saving FAQ
How Much Do I Need to Save for My Child’s Education?
Establishing a goal is the first step towards knowing how much to save for your child’s education. This is a decision that you and your family will need to make depending on your traditions, values and circumstances.
You may not feel it’s best to pay for their entire education or it may be tradition in your family to cover everything as long as they get good grades. Some parents will set a savings goal based on a certain amount of money, like $10,000. This is especially useful if you have more than one child; it will be consistent and can be a SMART goal. Another option is to cover a specific expense, like room & board, and estimate what that might cost.
What Are the Ways to Save for College?
There are may ways to save for college. 529 plans are tax-advantaged investment plans designed to encourage saving for future higher education expenses of a designated beneficiary (typically one’s child or grandchild). Depending on your state, there are all sorts of advantages and some disadvantages. One big plus is contributions are tax free as are withdrawals. Some states even allow you to deduct it from your taxes! Take a look at this map to see how your state handles 529 plans.
Other savings options include investing money in stocks, bonds or a Roth IRA. If you start when your child is a baby or very young, there will be many years for your investment to grow. Unlike a 529 plan, if your child decides not to go to college, there is no penalty for using the money elsewhere.
What about my retirement? Should I wait to save for that until after I finish saving for their education?
In this blogger’s opinion, you should save for your retirement first! This does not mean you love your children any less. If you don’t save for your retirement, your children may end up having to carry your expenses down the road. I would argue it’s a better idea to prepare for retirement. College isn’t a certainty; retirement costs are.
You may choose to save for retirement while still saving a little for child’s college. Just make sure you will accomplish your retirement goals. Try ACCC’s retirement calculator to begin planning.
I wasn’t able to save until recently. What can I do now?
If you or your child is nearing college and saving hasn’t been an option until recently, there are a few things you can do. You will need to become a budgeting & spending wizard and save by cutting back. Take a look at your budget and reduce as many expenses as possible. Cut the cable, reduce dining out, maybe downsize to one vehicle or a cheaper model. Additionally, increasing income will also move the needle forward. If you have any valuable items you would be willing to part with, consider selling them. Finally, you or your child might have to work for a year or two and then attend college to avoid debt.
Unfortunately, there is no easy way to save money whether you have 15 years or 15 months. Either way, it takes dedication to reach financial goals. Any savings you are able to give your children will be help avoid student loan debt.
To speak to a credit counselor today about budgeting and managing your finances, call 800-769-3571.