How to Save for Your Kids College Fund
As with anything it is never too early nor too late to begin saving for your kids college fund. College is expensive and as the years go on the prices rise. Sure, your child may be able to get scholarships and/or financial aid, but they may not be able to. In addition, even if they could, that doesn’t mean that all costs are going to be covered. Additional funding from you, as a parent, may be needed in order for your child to make it in and through college. There is always the option of student loans, but many parents would rather steer clear of them.
To touch on the option of student loans above, this will be an expensive choice. If you could save enough or close to enough for your child’s education expenses then you won’t have to worry about high interest charges on large amounts of money that you took on student loans. Therefore, the cheaper way to go would be to start saving.
So, how much money should you expect to save? You should keep in mind that there is financial aid as well as scholarships and the availability of student loans. As of now, you can expect to spend about $25,000 per year for an in-state two-year program. However, for a four-year University or Ivy League school, you can expect to pay around $250,000 or more per year. Now, that number sounds like a lot but if you start saving when your child is born and expect them to start college as soon as they graduate high school, you are looking at needing to save about $14,000 per year for your child’s first year of college at an Ivy League institution, which averages out to be a little more than $1,000 per month.
There are various ways you can actually save money of your kid’s college fund from creating trust funds if you are very well off or savings account if you have less. A trust fund can be set up in a way that the funds cannot be withdrawn by your child unless he or she shows some type of proof that they are enrolled in a college or university.
There are also educational IRA’s, also known as ESA’s, which will allow you (currently) to deposit $2,000 into the account on a yearly basis until the day before your child turns 18. If you start when your child is a newborn depositing $2,000 per year into an ESA, you will find a minimum of $34,000 when your child graduates.
You can also opt to open a CD. Money will accrue each year because of high interest rates. CD’s can be opened for several months or for several years – your choice. CD’s allow you to make money with the saved money you have deposited for your child’s education.
Another option that many parents opt for is using some of the saved money to invest in stocks. Not all parents choose to do this, as there is a risk of losing the money you have worked so hard to save, but there is also the potential to turn it into something significantly more. If your choice is this, be sure to use small amounts – do NOT invest the entire savings.
Many people will involve their children when saving for college. If your child is interested in pursuing a college degree, let them know how important it is as a general rule and how important it is to you that they do so. In addition, you can ask them to help you achieve that goal. Let them know you already have money set aside to help with their college education but you would appreciate their help as well. This will not only help them learn money management, responsibility, and skills to survive in life, but it will allow them to know that they helped to achieve their education apart from the learning, studying, late nights and tests.
Do plenty of research when deciding to open some type of savings plan or account as the type that you open could affect the eligibility for financial aid for your child later down the road.
The most important thing to remember when saving for your kid’s college fund is that you can start anytime; however, the earlier you can start saving for your kid’s college fund, the better. Another very important thing to remember is that no matter how much you save, every little bit helps and can go a long way so just take a look at your monthly expenses and put back what you can each month.