Disclaimer: I am not a professional financial advisor. The advice within this blog is just that – advice. Please consult your local bank or financial institution/advisor to receive the proper advice on where and how you should begin saving for your child’s college.
Did you know that you are only granted 940 Saturdays from the day your child is born until the day he or she turns 18? It sounds like a lot…but like they say, time flies. That means you only have 940 weeks to love on that sweet child (as much as they will allow you to), and to also begin thinking and planning for their future – COLLEGE!?
I was blessed to have had my college education, books and living expenses taken care of, thanks to the fact that my parents saved for me. Never once did I have to take out a loan, leaving me debt-free when I graduated with an expensive but much needed degree. I can’t even begin to thank my parents enough for that amazing gift.
You can do that, too, for your children!
Whether your children (OR grandchildren! Grandparents can help save for college expenses, too, ya know!) are newborns, toddlers, or even teenagers, it is never too late to begin saving and preparing for the expenses of college and higher education. You can begin saving in hopes of fully covering education costs, or save enough to cover at least a small portion (every little bit helps!).
Did You Know?
According to bigfuture, by The College Board, college tuition costs range depending on the type of school your child plans to attend:
A Public Two-Year College – about $3,500 a year
A Public Four-Year College (in-state) – about $9,000 a year
A Public Four-Year College (out-of-state) – about $20,000 a year
A Private Four-Year College – about $30,000 a year
This does NOT include books, living expenses, necessary items to survive and live (clothes, food, utilities in an apartment, etc.) This can seem daunting and…well, let’s face it…SCARY!
The bigfuture website also has a really neat feature – a College Cost Calculator – that you can use to estimate what it will cost you and/or your child to pay for college.
Ways You Can Begin Saving for Your Child’s Future
There are various ways to begin saving for your child’s future. Two of the traditional ways (which will require the assistance of a financial advisor at a bank or financial institute), are 529 savings plans and ESAs. These savings plans are tax-free, as long as you do not withdraw (take money out of the account) only when you are using the funds to pay for educational expenses. So, in other words, don’t touch a 529 savings plan or an ESA until you need to pay for tuition, books and sometimes even living expenses!
A 529 Savings Plan
These plans are generally low-cost and offer tax benefits. Your earnings, typically, will not be taxed if you only withdrawal for educational expenses. Not to mention, these plans are easy to setup – just deposit money into your account regularly, or as your budget sees fit and watch the amount grow over time!
You have complete flexibility to contribute each month however much money you would like to add to a 529 savings plan. This also varies by state.
Speak with your local Financial Advisor to find out more!
I signed my children up for an ESA, also known as a Coverdell Account, with our bank. An ESA gives you flexibility as to when and how you deposit money into the account, you may find that these plans also have great tax benefits, depending on how you and your child plan to use the money for educational purposes.
The downside to this account is that there is a $2,000 maximum annual contribution per child up to the age of 18. So, if you invest $2,000 in your child’s account, grandma cannot add an extra $500 to the account in the same year.
There are also much more nitty-gritty details to these two savings plans. As always, advise your financial advisor!!
You can compare the two savings plans by reading the article HERE.
Just Start Saving!
We started saving extra pennies, loose change, and extra dollars in a small piggy bank when our son was a newborn. We began by just adding what we had left over from the week to the piggy bank. For a year, we did this and we were able to save over $200, which we later added to his ESA and gave his account a great jump start!
The upside to “just saving what you have in your pockets at the end of the week” strategy is that you have full control over what you are saving. It is also a mindless and easy way to save, as all you have to do is drop some change into a jar and accumulate an amount over an extended period of time.
The downside to this is that you do not have the ability to earn interest on what you save. So, the only money that you will have in your savings “account” will just be what you put into it. With a 529 and an ESA, interest will begin to accumulate to help grow your dollar amounts (this also depends on what the rates are at the time…they can change you know!).
With anything in life, there are ups, downs, risks, expenses and successes. You just have to choose what works best for you and your budget.
What I like about the gain from interest is just that – we gain! Over time as we continue to save and deposit money into our children’s accounts, the amount will grow over the next 940 weeks! It is our hope that our children will be able to go to school for “free” and leave with a diploma without the heavy burden of debt and paying that off over time.
Hop To It!
Don’t let saving for your child’s future scare you. Just get started. Your child will thank you for any contribution you can offer to him or her when he is faced with paying for expensive schooling! Choose the best option for you and your family and begin saving. Little by little, your efforts will grow and grow!