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Before you know it, your kids will be heading off to college, you will be pouring tears into your handkerchief and the hubby will be dancing with joy. So you want to prepare to meet that day with plenty of money in a college fund and a plan on how to make this transition as smooth as possible for the entire family.
And it’s never too early to start saving money for your children’s tuition. In fact, you should have a kid’s college fund set up well before they are born, but if you’re just now getting around to it, here are the five best money saving tips for your baby’s college fund.
Saving the Right Amount
First things first, you’ll need to figure out how much money on average you’d need to save to one day be able to cover your child’s tuition fees. On average, a family earning $75,000 annually would have to save $2,250 a year, or $190 a month for 12 years in order to ensure a public college fund. But there are several problems with this type of mindset.
For one, you can’t know whether or not your child will want to attend a public or a private university what his or her aspirations and goals in life will be. Secondly, your child might or might not receive a partial or a full scholarship – this will significantly impact the total cost. Be sure to find a reliable college savings calculator in order to get a rough estimate of how much you should save annually.
Investing in a 529 Plan
A good way to ensure monetary savings is to purchase a college savings plan or a prepaid tuition plan through a 529 savings program. These plans are sponsored by states or educational institutions. A college savings plan allows you to invest money in mutual funds, money market funds, or other investment opportunities in order to make them grow and thus help tuition and other college expenses.
On the other hand, a prepaid tuition plan allows you to buy college credits at the current tuition rate. This means that you can use those credits at select colleges and universities and that you can use the credits’ value for tuition at other schools.
Saving Money Over a Long Period of Time
Much like you are planning to spend thousands of dollars on diapers, baby gear, supplies, and all of the other necessities over the years (BUT NOT THESE BABY SUPPLIES), you should be putting money aside for your kid’s college tuition – that’s a given. However, with all of the expenses on a monthly and annual level, it can become quite hard to allocate funds for this purpose.
Look for ways to cut your expenses and shift your resources by buying used clothes and toys, and less expensive baby essentials. And don’t waste your money on these items! Stash the extra saving away for your child’s college fund!
Along with a substantial savings account behind you, you will have to gather the necessary information on how to get into an Ivy League School or a state university your kid can one day use to leverage the odds in their favor.
Opening a Custodial Account
You can also open up a savings account in your child’s name. This is called a custodial account and it works much like any other savings account – the money grows over time and you can choose to invest as much or as little as you want. The great thing is that other family members may add to the account as well.
These accounts are subject to annual taxes or when the money is withdrawn. When your kid reaches a certain age, they can use the funds however they please. This means that the money doesn’t necessarily have to go towards college, should your child choose a different path.
Being a parent is a full-time job, but more than anything else, it’s expensive and if you don’t organize your finances thoroughly, it can bleed you dry within a few years. You might be thinking that your kid’s college days are still far away in the future, but they are coming fast – don’t let them catch you by surprise.
About the Author
This is a guest post feature from Claire Adams, a personal and professional development expert who believes that a positive attitude is one of the keys to success. She contacted me to write this post. Since it was something that fit my niche and was something we both are passionate about, I was excited to have her as a guest blogger. To connect with Claire, please visit her on Facebook and Twitter.