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Saving for college is not always as easy as it sounds. In fact, many people underestimate how much it actually costs and how hard it can be to save even an extra $100 per month. If you do not want to go into a bunch of debt paying for your child’s college costs, you will need to figure out a plan and start saving . Below, we are going to explore how you can add saving for college into your family budget.
When we break down some of the statistics, you may be scared for your child. In fact, almost 20 percent of student borrowers will graduate with over $50,000 in student loan debt. To put the focus more on how serious the situation is, young children today could pay as much as three to four times the amount that tuition is now. Scary, right?
Let’s explore some of the ways you can include saving into your family’s budget.
College Savings 529 Plan
A college savings plan is a wonderful way for you to start saving for your child’s education. The best thing about these plans is that it is very hard to withdraw and use this money. If you simply put the money to the side in your home or at your bank, you may be tempted to use it when you find yourself short on bills one month. In a college savings plan, you will not be able to do this without tax penalties, so you are guaranteed to save and build up the account.
A 529 college savings plan is a wonderful option for most families. You place your investment into the account after taxes have already been taken out of the money. You can then withdraw the money tax-free and use it towards college expenses. Some of the approved expenses include books, tuition, and similar
Every state has a different plan and terms that go along with the plan. This means that you may face some tax penalties and fees should you take out the money and not use it for college expenses.
Prepaid College Tuition 529 Plan
This type of a plan is pretty straightforward. You can pay a portion of your child’s tuition now, allowing you to lock in the current tuition prices. You then won’t have to worry about a price increase down the road. If you pay a year’s worth of tuition now, you can use that credit in the future for a year’s worth of tuition – even if prices have substantially increased.
For example, if tuition at a local university is currently $15,000 a year, you can make contributions now, securing a portion of the tuition. If you were to pay $7,500, you would have paid 50 percent of the tuition and when your child is finally ready to go to college, you can cash in the money and use it. If the tuition at the same university skyrockets to $30,000 by the time your child heads off to college, your initial investment would double too, turning the $7,500 into $15,000.
Tips to Help You Save for Your Child’s Education
The two above plans are great ways to save for your child’s education. However, if you are not in a position to do either, check out the tips below to help save.
Start early on
You should start saving early on and not wait until the last minute. For example, if you saved $50 per month from the time your child is born, you could save up almost $20,000 for them. Assuming you earn interest on the money.
You do not want to wait until your child is in high school to start saving for their education. By that time, you will most likely be overwhelmed and stressed out. The earlier you start, the better. At a minimum, you should try to save enough money so that your child can avoid private student loans. Private student debt can be dramatically more expensive than federal aid as they typically have much higher interest rates.
Set goals for saving
If you do not have any goals in mind when it comes to saving, you will not make it very far and you may even forget to do it. You should set realistic goals for yourself that are attainable. For example, you may want to try to save up $3,000 by your child’s 5th birthday or maybe $5,000 by the time they turn 10.
Setting goals for yourself will allow you to work towards something. You will see the progress and it will motivate you to keep going.
Prioritize your finances
Though it would be nice to have enough money for everything – this simply isn’t the case for most people. This is why it is necessary to figure out what is essential and what you can go without. For example, if you have a cable bill that is $190. There might be cheaper options. Consider switching and send the extra money you save directly into your child’s savings account.
Related: Things I’ve Given Up To Save Money
Start Now and Don’t Wait
Don’t wait until it is too late to save for your child’s education. The power of interest can take early contributions to savings accounts a long way. You will be surprised at how much your money will grow. You can set a budget for yourself and then incorporate saving into it easily once you go down the list of your must-have and it-would-be-nice-to-have items. While saving for your child’s education may mean forgoing cable or dinners out, it will be worth it in the end. It will prevent your child from drowning in student loan debt after graduation. Something he or she will surely be grateful for in the future.
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- How to Include Saving for College in Your Family Budget - May 1, 2017