When you bring a child into your family, you know that it’ll change your financial circumstances forever. Early in their life, you assume that you have enough time to save for the future. But time has a way of flying by. And when that happens, you may soon realize that you don’t have enough saved for your child’s college education.
There’s no right or wrong way to save money for your child’s college education, as it depends on your specific financial circumstances. However, there are some basic things you can consider to ensure that you’re on the right track.
Here are five of the best ways to save enough money for your child’s college education:
Set a budget
Today, you’re shopping for baby pajamas, but it won’t be long before your child is moving into high school and thinking about college. With each passing day, you must have a firm grasp of your budget to ensure that you know how much you’re saving, how much you need to save in the future, and the impact on other areas of your finances.
Open a 529 plan
A 529 plan is a state-sponsored college savings plan. The money that you save for your child in this type of plan can be used for educational expenses such as tuition, room and board, books, and other supplies. Before you get started, talk to your financial planner and tax professional about the pros and cons of opening and funding a 529 plan. You’re likely to find that the benefits far outweigh any potential drawbacks, but you still want to be 100 percent sure that you’re moving in the right direction.
Know your goals
You should set both short and long-term goals. For example, if you know that you need to save $100k for your child’s college tuition, break this down into smaller annual goals. This will help you stay on track, year after year. It’ll also help you identify any challenges and setbacks along the way.
Tip: be realistic when setting college savings goals. If you set a goal you can’t reach, you’ll end up disappointed in the long run.
Find big chunks to save
This is where you can really make a difference. Any time you get a big chunk of money, consider if you can add it to your child’s college savings. This money can come in many forms, such as a holiday bonus, tax refund, or lottery winnings.
It may not be the most exciting way to spend a large amount of money that you come into, but it’s sure to benefit your child over the long run.
Invest in stocks and bonds
While you can do this within a 529 plan, you should also consider the ability to do the same in a traditional brokerage account. The benefit of this is that you’re not putting money into an account that must be used for educational-related expenses.
On the downside, there’s a greater risk of losing money, as you never know when the market will take a turn for the worst. In addition to consulting with a financial planner, use a stock screener to help you better understand your options, risk, and upside potential.
Keep an Open Mind
Even if you’re locked in on one or more of the ideas above, you should keep an open mind as your child ages. There will be times when you find yourself on the right track. There will also be times when you need to adjust your approach. Keeping an open mind affords you the flexibility to make timely, confident decisions that will benefit your child in the future.
What do you think? Do you know feel better about your ability to save enough money for your child’s college education?
There’s no law that says you have to help your child pay for college, but you should at least look into the steps you can take. You may find something that suits you and your financial circumstances, both now and in the future.
Do you know the best way to save for your child’s college education? Do you have a plan in place? Do you have short and long-term goals?
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