The cost of bringing up a child from birth until they’re 17 years old is on average, over $300,000, according to recent findings by The Brookings Institution. This price range doesn’t factor in the considerable cost of tertiary education. Thus, establishing a college savings account tends to be a valuable strategy in preparing your kids for a prosperous future. Wondering how to go about saving for your child’s higher education needs?
COSTS RELATED TO UNIVERSITY EDUCATION
The U.S. News yearly survey reveals that for the 2022-2023 academic year, tuition fees ranged from $39,723 (private institutions) to $10,423 (public, in-state colleges). Barring any changes in the educational funding structure, these costs will continue to increase. Higher education expenses usually rise at approximately double the inflation rate per year, a pattern predicted to persist.
If you’re inspecting tactics to save for higher education, here are some alternatives:
STRATEGIES FOR COLLEGE SAVINGS
Starting to save for your children’s university education is a smart move but needs thoughtful planning and perseverance. Below are some beneficial steps:
BEGINNING EARLY
The sooner you kick-off savings, the longer time your money has to accumulate. The best time to open a college savings account is right at your child’s birth. The leveraging power of compound interest and frequent contributions can lead to substantial growth over the years, reducing the necessity to set aside large sums regularly.
COMPREHENDING THE EXPENSES
Understanding all the potential expenses associated with college, including some unforeseen ones, can help you compare institutions and seek ways to trim your costs, all while giving you a target savings total.
SELECTING A SUITABLE SAVINGS ACCOUNT
Initiating your child’s college savings early can be facilitated by right savings options. Tax-advantaged accounts like 529 plans can provide potential tax benefits and flexibility regarding education-related expenditures. Coverdell Education Savings Accounts (ESA) are also worth considering.
AUTOMATIC SAVINGS
By setting up automatic monthly deposits into your college savings account, you can encourage growth. Each deposit will increment your total funds, and compound interest can further amplify your savings. Automating your savings currently ensures regular contributions and minimizes the temptation to divert the funds.
FAMILY CONTRIBUTIONS
Let family members be aware of your higher education savings aim. They may be willing to pitch in during birthdays, holidays, or other occasions. At birthdays, you might list the link to your child’s present page in your digital invitation, stating that contributing to the 529 savings account is also a generous gift option.
INVESTMENT STRATEGY
Consider a balanced strategy that matches your risk comfort and the time remaining until college. Look at diversified options available with many college savings plans, and adjust as required.
SCHOLARSHIPS AND FINANCIAL AID
Be on the lookout for scholarship or financial aid chances. Although they won’t replace your savings, they can assist in controlling some of the costs.
WHERE TO INVEST YOUR MONEY?
A 529 savings plan is an excellent consideration if you’re saving for university, offering you tax-free growth and withdrawals for college and K-12 tuition and other approved educational expenses.
Traditional and ROTH IRAs, as well as custodial accounts under UGMA and UTMA, are also worth looking into. Remember, the cost of college education is rising swiftly, so it’s important to start saving as early as possible.
Once you decide on what proportion of your child’s university education costs you plan to cover, you can calculate a monthly contribution plan, choosing to invest in a 529 savings plan, a brokerage account, or a prepaid tuition plan. A 529 savings plan tends to provide the most tax benefits and flexibility.
Lastly, every family has unique financial circumstances, making it crucial to customize your college savings plan to fit your specific needs and financial situations. Remember to periodically review and adjust your strategy as required.
