It’s never too early to start planning for how you will help your child pay for college. College costs have risen consistently for the past 10 years, and there is little reason to think that this trend will reverse itself. In fact, most estimates predict increases in educational tuition costs of at least 5 percent per year. That means if a child born in 1999 starts college in the year 2017, a private college education could cost at least $54,000 a year!
To begin thinking about your child’s college savings plan, first consider how much college will likely cost at private and public institutions when you’re child is ready for college. There are many tools online to help estimate tuition costs. Here’s one from CollegeBoard that takes several planning factors into account.
Whatever tuition projections you establish, keep in mind that many students receive scholarships and other financial aid to help offset the cost of their studies.
How much money you are saving, though, is less important than how soon you begin saving. Using compound interest to your advantage helps grow your money over time. If you start saving early, your money works for you which costs you less in the long run. A modest weekly or monthly investment can grow to a significant college fund. For example, saving $50 a month from birth would yield about $20,000 by the time the child turns 17 (assuming a 7 percent return on investment). Saving $200 a month would yield almost $80,000.
Here are a few ideas for growing your college savings account:
Try increasing your college savings when your salary increases or add extra cash from yearly bonuses. Money that comes unexpectedly and has not been budgeted for will not be missed.
Encourage your child to put some of his or her part-time job earnings aside for college.
Consider getting other family members involved. Rather than expensive presents for birthdays and holidays, ask grandparents, aunts, and uncles to give a gift of a contribution to your child’s college savings plan.
Even if you haven’t saved from birth, it is never too late to start. Planning is the key to reaching your college savings goals. Get your finances in order – saving for college should be part of your total financial plan, not a stand alone goal.
Discuss your options with your CPA or financial advisor, and come up with a financial plan that allows you save for college as part of your overall saving for your family.
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