How to Save for Your Child’s College Fund
It can seem pretty daunting when you realise you have two children who may need money for college, cars, weddings and much more in the future. It’s a lot of money and many people don’t have it. With that in mind, it’s wise to start saving as soon as possible. The sooner you start putting money away, the more money will be available when milestones like college come around. So, how do you start saving and make the most of the money that’s put away?
When it comes to college, some students are looking at up to $50,000 of debt by the time they’ve graduated. That’s not the kind of debt you want hanging over your head as you’re just about to embark on one of the biggest challenges you’ve ever had – finding a job. However, it can be hard to find the extra money to put away in order to help them. Here’s where to start:
College Saving Plans
This is a great option when you’re specifically saving for future college funds. Up to 30 states offer 529 savings plans where you can deposit small amounts of cash towards your child’s tuition and any reading materials needed. The problem with this is that it’s meant for college alone. If your child decides on a different path, like going straight into work or setting up their own business, it won’t be easy to get the money back. When you do get the money back, you may be liable to pay fees or charges.
Roth IRA
This is usually a safer bet than the 529 savings plans. Generally, the Roth IRA is used as a retirement planner. However, the account can also be used to start a college fund. You can use after-tax income to contribute towards the fund and you won’t be charged to release cash as long as it’s used on qualifying educational expenses. The benefit of this type of account is that if your child chooses not to attend college, you won’t lose the money. You can still keep the account going and save for your own retirement.
Prepaid College Tuition Plans
This one could potentially save you a lot of money in the future. It gives you the option of paying, usually in part, for your child’s tuition in advance. This means you can pay for your child’s first semester now an if price’s rise in the future, you won’t have to pay anything additional. For example, if you pay $8,000 towards your child’s education now but when your child actually attends college, the price then is $14,000, you’ve just saved yourself $6,000. You’ll need to read up on the rules in your specific state, but it’s certainly a good option.
Gift of College
If you’ve got a large group of family and friends, they’re probably asking what your child wants for every birthday, Christmas and other event in their lives. When they’re younger, you may find that they’re inundated with toys they don’t really need or play with. A great alternative you can give to family and friends is the gift of college. You can register your children for free and create a profile for them. Your family and friends can donate up to $15 a time and a 5% processing fee will be deducted. However, it’s an excellent way to make sure money doesn’t go to waste. If it’s an option, you can also cash in family heir looms when the time comes, to add to the pot.
A Credit Card That Works With Your 529
You may have already heard of Fidelity Visa and American Express Cards but you may not know their benefits when it comes it a college fund. The way it works is you’ll earn cash back on your purchases. You can earn around $180 for every $1000 a month spent. It may seem like a small amount but totalled over a few years, it can really make a big difference. The money you earn will be deposited into your 529 account and because the 529 account is in your name, it won’t affect any financial aid your child applies for. It all adds up to one master plan – a 529 account, a 529 credit card and financial aid for any additional expenses.
Don’t Worry
Thinking about the amount of money you need for the future can be overwhelming. If you can’t afford to put money away as your child grows up, don’t worry because there are other things you can do. Firstly, encourage your children to do well in school. If you can help your children to get the best grades, they may be lucky enough to be offered a scholarship. You may also want to make them aware of the value of money at a young age. As soon as they’re able to work, encourage them to find jobs so they can save up to be as independent as possible when it comes to college.
If you child is in a position where a student loan is the only option, teach them how to manage their money well. It’s important they don’t spend the money on things they don’t need. After all, it’s money they’ll have to pay back at some point and they want to look back and wish they’d done things differently. You could also sit down and make a future plan with them, so they know how much of their future income will have to be spent on re-paying debt.
There are lots of other ways you can help while they’re at college too. For instance, offering to do laundry so they don’t have to spend money on laundrettes or sending food packages and new clothing. College is a wonderful time in a child’s life that matures them and helps them to find who they really are. There are many ways you can help your child to have that experience without putting yourself into piles of debt. The sooner you can get started on saving for the future, the better.
