Saving for College Strategies
Dr. Michele Borba reached out to me and offered to be a guest author on How Families are Paying for College which gives excellent advice about paying for college. One savings plan that she did not mention that I do for my kids is the 529B savings plan which allows the money that you save to grow in a tax advantaged way. Here’s a link to a website on 529B College Savings Plans. I personally use a financial planner for advice on this as there are many different 529B plans. Financial planners are not cheap, but you can, with significant digging, find a qualified one that fits your budget. The Motley Fool has some advice on How to Pick a Financial Planner that is quite good.
Finally: The World’s Simplest College Cost Calculator. Just type in your child’s age and it will calculate the cost of college. There are additional screens if you want to know how much you should save monthly and then figure out different scenarios of the return rate.
Let me know by leaving a comment if this is a topic that you want more information on. I can possibly get my financial planner do guest post as well.
Investment Vehicles for Saving for College
Planning for your child’s education is extremely important and I advise parents to start saving early. In a recent study by Sallie Mae and Gallup only a quarter of families (26%) strongly agreed that they had a plan to pay for the desired college degree before enrolling.
So it is important to think about college as a long-term investment that you need to plan for in advance.
The study found that on average, parents pay for 47% of total college costs for their children, student contributions cover 23% of the cost, grants/scholarships make up 23% and contributions from relatives 7%.
To make sure you are prepared for college:
Contribute on a regular basis. This not only helps in saving for your child’s future, but can help you maintain a long-term investment strategy, as well. Every month take a certain amount of money – even if it is a small amount – and put it in a college savings account. Even the smallest amount will add up over the years. Hopefully this will become a routine and you will think of your regular payment to your child’s savings as an essential part of your budget.
Save while you spend. Look for programs that help you earn money towards college. One great option is the Upromise® World MasterCard® credit card from Bank of America, which allows you to earn 1% college savings on all of your purchases. Anyone can open a Upromise account for free and apply for the card. Earnings from everyday card savings are automatically deposited into the account and can then be transferred to a tax-advantaged 529 plan or high-yield savings account. By using the card for everyday purchases like groceries and gas, you will be able to accumulate savings over time and when college comes and you need the money, it’s there.
Get the kids involved. Get your child in the habit of saving from an early age. If you give your child an allowance, require that a certain amount is set aside to save. For instance, if the allowance is $3, then have $1 go to savings. Deposit the money into a savings account, money market, bond, etc. and then it can be applied towards the long-term goal of college tuition.
Save your change. Few people realize how much change they really have. Even a small amount can add up by taking whatever spare change you have around and putting it away. Keep the change in a jar and once it is full, you can add the change to your savings account or child’s college fund.
The Sallie Mae and Gallup study also found that to make college more affordable, most families reduced spending (73%) or increased work hours or earnings (48%). Even more interesting, 43% of families report that their student lived at home during college in order to cut back on the cost.
The bottom line is to talk to your kids about college early and set a realistic plan for how you and them will work together to ensure they receive a quality college education.