It’s an accepted fact that college tuition in the US these days are rising at an alarming rate. If your child is 4 years old today, you may need at least $200K if you want them to attend a public college in the future. If you are aiming for a private college, you’ll need to double that figure.
So now is definitely the time to start saving for your kid’s college tuition and here are some tips to keep in mind:
1. Prioritize your own retirement first. This may run counter to your own instinct to sacrifice for your child, but you need to think objectively about this matter. The simple truth is that your child will have more financial resources than you would have by the time you turn 60.
In addition, the formulas that schools use to assess the needs of students usually don’t take your retirement money into account. But if you put your money in your child’s name, your child may find their financial aid package reduced as a result.
2. Consider 529 savings plans. These 529 plans are vehicles which are specifically designated for college money. Every state offers its own 529 plan, and they come with annual fees and operating costs. However, they give you tax breaks too. Also, you can start a 529 plan regardless of how much money you make or how old your child is.
3. Stick to stocks or mutual funds. The simple economic fact you need to remember is that the cost of a college education is outpacing the rate of inflation. A savings account just won’t cut it. You need to make sure that you can at least match the rate of inflation.
But it’s not that simple. During your child’s early years, you may want to keep a majority of your money (from 60% to 90%) in stocks while the rest will be placed in bonds. As your child reaches 9 to 13 years of age, your contributions should be directed towards more conservative options. By the time your child reaches past their 13th birthday, you should continuously move your money from stocks into conservative options such as bonds.
4. Start now. The sooner you start saving, the better it would be for you and your kid. It doesn’t matter if your child is still a baby. Setting aside just $200 a month for 18 years, with an average annual return of 8%, can result in $96,000 towards your kid’s tuition.
5. Get your child to contribute. Part of your child’s education is to get them to realize the value of a college diploma. And along the way they also need to realize that they ought to save money for college as well. Once they’re old enough to babysit or flip burgers, then they should also be old enough to know the importance of setting aside some of their earnings for college.