As well as any money earned from part time jobs. Encourage your children to sacrifice their wants now to succeed later in obtaining their goals.
This topic has been on my mind a lot lately. Do you know that the estimated cost of putting a newborn through college is nearly equivalent of paying cash for a median-priced home today? Hard to believe, but true. Saving that amount of money, especially for those with more than one child, is nearly impossible for most families. No parent wants their child to start their adult life with a mountain of debt. So, what do you do? The three questions I hear all the time about college savings is:
Is it worth saving for college?
What age should you start saving for college?
How much do I need to save for college?
Is it worth saving for college? Absolutely! There are many ways you can save towards your child’s college education. Some options include a regular savings account, an investment account, and a 529 savings plan. The most popular of the three is a 529 savings plan.
You can open a 529 savings account for your child, grandchild, niece, or nephew. Really anyone that you would like to contribute towards their education is eligible to have a 529 savings. (A 529 plan is an investment account that offers tax benefits when used to pay for qualified education expenses for a designated beneficiary.) Some parents prefer to open a savings account while others would rather open an investment account.
They all have benefits as well as risks. A savings account is completely safe in the sense that you'll never lose money but there is no chance for growth with most banks paying little to no interest on your money. Investment accounts always involves risk but typically have the potential for higher returns than a savings account and may help you reach your long-term goals.
What is great about 529 plans is that investments grow on a tax-deferred basis and distributions are tax-free when used to pay for qualified education expenses, including college tuition and fees, books and supplies, some room and board costs, up to $10,000 in K-12 tuition per year and up to $10,000 in student loan repayment per beneficiary and per sibling.
What age should you start saving for college. It’s never too late to start but the short answer is, the sooner the better. Kids grow up fast, and before you know it, they are in high school with college tuition knocking at your door. You can open an account at birth and contribute regularly, the earlier you save, the more time your money has to grow. That is the beauty of compounding.
Any monetary gifts your child receives could also be added to their account.
As well as any money earned from part time jobs. Encourage your children to sacrifice their wants now to succeed later in obtaining their goals.
How much do I need to save for college? You should aim to save at least one third of the cost of tuition. Why only one third. The remaining two thirds could be filled with scholarships, financial aid, and current income. (e.g., your income, work study, or part time job your student has while attending college). For the 2021-2022 academic year, the average price of tuition and fees came to: $38,070 at private colleges. $10,740 at public colleges (in-state residents) $27,560 at public colleges (out-of-state residents)
So if your child attends a private four-year college next fall you are looking at $152,280 for just tuition and fees, one third of that is $50,760. Of course, these are just average costs for the upcoming school year. For a child who is four years old today, the cost to attend college will double. Although that amount may seem daunting, it is attainable.
There are ways to break it down into achievable monthly contribution. The secret is to start as soon as possible. Commit to a monthly distribution, to do so you may need to adjust for your personal situation. Sit down with your child, especially as they get older and closer to college, explain the importance of saving to achieve your goals.
Make it a family affair, the more they are involved, the more willing they will be to give up some fun now for an education later. Reach out to family members. Ask relatives to swap a birthday, holiday, or graduation gift for a small contribution to college instead.
The cost of the latest video game today can mean a whole lot of money 10 years from now. Once your child is ready to start college, they can apply for scholarship and apply for aid. Making the right plan for your children’s future begins with understanding all the information out there.
Freedom Finance can help you see your goal, understand your obstacles, and move you in the right direction to stay on track and obtain your dream.
