Recently, Forbes ran an inspiring article about a mom who started saving for her child’s college tuition on the very day that child was born. She saved what she could, investing little bits here and there—and by the time her child reached age 18, the mom had saved more than $70,000 in that college tuition account.
This is an amount that many parents will be envious of. Of course, not all parents will save this much for their children’s college tuition. Not all parents will need to. And some parents might even save more than $70,000, just depending on how much they are able to invest, and on what their investment plan is.
For parents who want to know how they can make smart college investment decisions, like the mom in the Forbes article, we’ve got a few basic pointers to provide—some guidelines for smart college savings:
Estimate the need. Given the wild fluctuations in tuition costs, it’s impossible to predict for sure how much your child will need—but you can certainly make an educated, ballpark guess. Pick three schools that seem like reasonable possibilities for your child, and see how much tuition currently costs. Expect that amount to rise by about five percent each year. Project how much the average tuition might be when your child reaches college age.
Factor college savings into your budget. Make investments into your college savings account a monthly line item in your family budget. The amount may not be as much as you’d like, but taking a disciplined approach is important.
Set up a dedicated account. You don’t want to hold your college tuition savings in your general savings account, or in a retirement account—not least because you’ll be tempted to dip into these accounts when big expenses come up. Instead, start a dedicated savings account—or better yet, work with your financial planner to set up an investment portfolio—and pass along the account information to any family members who might wish to contribute.
Don’t mess up your other savings plans. Saving for college tuition is important, but so is saving for your own retirement, paying off your debts, and addressing any other major financial obligations. This is why it’s important to have dedicated lines in your budget, dedicated accounts, and perhaps even automated deposits—ensuring that you’re disciplined in meeting all your savings goals.
Meet with a financial advisor. There are a number of excellent options out there for tax-advantaged, safe college savings accounts. Knowing about these options is a critical step in doing the best you can for your kids.
To learn more about these options, contact the Stonepath Wealth Management team today!