Raising children isn’t cheap. According to data from The Brookings Institution, the average cost of raising a child from birth to 17 years old is over $300,000, and this doesn’t even include the cost of college. To help set your child up for success as an adult, it’s a good idea to start a college fund. But how do you get started?
1. Understand and Consider College Costs:
According to a U.S. News survey, tuition for the 2022-2023 academic year averages $39,723 at private colleges and $10,423 at public, in-state colleges. Since college costs are rising faster than inflation, these numbers are likely to go up.
2. Explore Savings Options:
It’s best to start saving as early as possible, ideally from your child’s birth. Regular monthly or yearly contributions can benefit from compound interest, helping your savings grow over time and reducing the monthly saving burden.
Understanding the full scope of college costs is important. Besides tuition, there may be other expenses. Knowing these costs can help you set a realistic savings goal.
Tax-advantaged accounts like 529 plans and Coverdell Education Savings Accounts (ESA) are worth exploring, as they offer tax benefits and flexibility for education expenses.
Automatic deposits into your savings account can help you build up funds steadily and without much hassle.
Let family and friends know about your college savings goals. They might chip in during special occasions like birthdays by contributing to the 529 savings account.
Your investment strategy should match your risk tolerance and time frame. Diversifying your investments and adjusting your strategy as needed is crucial. Look into scholarships and financial aid opportunities as they can help reduce costs even if they don’t cover everything.
3. Where to Invest:
Consider 529 savings plans or state-sponsored investment accounts designed specifically for education. These plans allow you to withdraw money tax-free for college and other qualified educational expenses.
Traditional and Roth IRAs are another option, offering tax advantages for investments like stocks, bonds, and mutual funds.
Custodial accounts like UGMA and UTMA accounts let you save money or assets for a minor until they reach adulthood.
With college costs rising quickly, early savings and sound investment strategies are vital for parents who want to fully or partially cover their child’s higher education costs.
Everyone’s financial situation is different, so tailor your savings and investment plan to fit your circumstances and be ready to adjust as things change.