There are lots of ways to save for college, but it may be hard for parents to find the right methods that will work for them. All parents do not earn the same and financial situations vary, but there’s a plan for everyone that has a desire to save.
Start Saving Right Now
There’s no time like the present when it comes to saving. It doesn’t matter how little you save at this point. It’s just important to establish the act of saving as a priority. This is the first stepping stone.
Parents have to mentally take the act of saving for college into consideration. Putting funds aside for college allows parents to include this into their monthly budgets. This makes it easier to continue the process.
It’s important to consider how much needs to be saved once they start saving on a regular basis. This allotted amount gives parents the chance to see how much needs to be saved for a specified time period.
The ability to save is good, but saving without investing is rarely enough to truly build a decent college fund. This money needs to make a slow transition into an account that helps the money earn interest. This accelerates the saving process.
The 529 college savings plan, for example, is a pre-paid tuition plan that grows deferred. The earnings from the 529 investments are not subject to federal income tax. This is a great tax advantage that should work as an incentive for parents that desire to save.
Another plan that is equally effective is the Coverdell Education Savings Accounts. This allows the savings to grow tax deferred as well. Contributions can be made for up to $2,000, and this is tax free.
Know Your Time Line
These plans are great for savings, and some of them have mutual funds that parents can invest in. The key here is to be aware of your time line. The stage in your child’s education greatly affects the type of investing that you will be able to do.
It may be easy for a parent to invest aggressively when the children are in elementary school. These parents have a long time to bounce back even if they take a loss from the risky investments. Parents that have children in high school, however, do not have the ability to take these types of risks.
Parents with high school children should consider modest moves in the area of investments. They need growth, but they also need the stability of the funds that they are setting aside for the college funds.
Anticipate the Future
Saving for college is already a clear case of anticipating for the future, but this is just the surface. Some parents may only consider tuition at present costs. Many may fail to realize how much tuition can increase over time. It’s best to plan what is needed in the future and exceed this amount.
Parents should watch the rate increases and check the percentage over 3, 5, and 7 year periods. They should calculate the percentage increases and determine the average. They should then make an effort to add this average to their existing plan.
Always Have a Plan B
Parents may consider co-signing for a student loan with their children. While it is not ideal to go into debt, education can be a high ROI investment in many cases. Provided your children don’t double major in woman’s studies and underwater basket weaving 😉
Things can still go wrong even with all of the hard work and dedication that goes into planning. It may be hard to believe, but many college plans may not yield large returns. There are times when the economy is sluggish and investments do not perform as anticipated.
Parents should not throw in the towel when this happens. A better approach would be to continue saving. Any aggressive accounts should be switched to a moderate status, but the savings should continue. Parents may not completely compensate for the failures of the investments, but increasing the saving amounts will help the plan stay afloat. Parents should also resist the urge to take money from the plan.