Everyone knows the cost of college has skyrocketed over the past few years, and it appears this rising trend will continue. We all also have read about, or know of, students graduating with a literal mountain of student debt. These two phenomena drive home the critical importance of saving money for college. While saving for college is not “rocket science,” it does take a significant amount of planning and discipline. Hopefully, the following tips will provide a framework for you as you get ready for your child’s college experience…..by the way, that day will get here much sooner than you think.
Save early and often.
Start saving the day the baby is born, and save as often as you can. The sooner you start, the more you can take advantage of compounding to watch your savings grow. It will also help you get into the habit of saving.
Save As Much As You Can
If you don’t think you can afford to save, start small. You will find that you will adjust your spending habits and can gradually increase the amount you save. Don’t worry too much about starting small since the compounding of interest over time will help your savings grow. The first step is to get into the habit of saving.
Rather than save money at random intervals, try to save a little every month. The more frequently you can save the better; if you can save with the same frequency as you receive your paycheck, you will find it easier to get into the habit of saving.
Make Saving Automatic
Sign up for payroll deduction or ask your bank to automatically move money from your checking account to your savings account every month. Many state section 529 plans have options where you can have money transferred from your checking account every month. If the money isn’t in your checking account, you’ll be much less likely to spend it.
Earmark Saving for College
Use a special account designated for college. This will help you save, because it will motivate you to save.
Establish a Goal
Most of us are goal oriented people, so if you specify a savings goal, you’ll be able to measure your progress toward that goal.
Invest Windfalls, Don’t Spend Them
If you should get a windfall, such as an inheritance, a large income tax refund, or a bonus at work, put it in the college savings fund. It is better to save than to spend!
Increase The Amount You Save Each Year
Increase the total amount you save each year by at least 5%. So if you save $100 a month this year, you should save at least $105 a month next year. Hopefully this will help your savings to keep up with the college tuition inflation rate. When you get a raise, increase the amount you save.
Ask Relative to Help
Get up a section 529 plan, and ask relatives (especially the grandparents) to contribute money to the plan. About 60% of grandparents say that they would contribute to a section 529 plan if asked, especially since they know the money will be spent on the child’s education.
Redirect Old Regular Payments Towards the Savings Goal
Whenever you have a regular payment that stops, try shifting at least part of the money you were previously paying into the college savings account. Since you were already used to spending that amount, saving it should be relatively painless.
Review Your Living Expenses
Create a monthly budget that reflects your actual spending habits, and try to identify living expenses that you can cut. Any time you cut your expenses, redirect the money toward savings.
Use It As An Opportunity to Teach Your Children
Involve your children in the investment decisions. Since it involves their future, it is a good opportunity to education them about the benefits of saving. Encourage them to save at least a portion of any money they receive as gifts or for working. Some parents will even set up a “matching” plan, where money the child saves for education is matched by additional money from the parents.