If you have or plan to have children, you want them to have a bright future and to be successful and financially secure. That may mean that you hope (or expect) that they will obtain a college degree. With tuition and other costs steadily climbing every year, many parents worry that they won’t be able to afford to pay for their children’s college education.
Set Clear Priorities
Before you start saving for college, you need to get your finances in order in other areas. Make sure you have an emergency fund with enough money to cover at least three months’ worth of expenses in case you suffer an illness or injury or lose your job. It’s also important to set aside enough money for your own retirement. You won’t be doing your kids a favor if you’re too old or ill to work, don’t have enough saved to support yourself, and have to rely on them when they’re starting out in their own careers and are not yet financially secure.
Lower Current Expenses
Find ways to cut your expenditures to make room for college savings in your budget. If you have any high-interest credit cards or loans, pay them off, or at least get the balances under control before you start setting aside money for your children’s future education. Consolidating credit card balances to lower your interest rates and refinancing your mortgage or other loans can save you money each month.
Eating out less often and reducing your spending on clothing and entertainment are other ways to lower expenses. These changes could allow you to save money for college without having a major impact on your current quality of life.
Ways to Save for College
Once your own financial situation is secure, you can begin to save money for your children’s college education. The earlier you start, the better. Because of compounded interest, even a small amount, when consistently set aside each month and left to accrue interest, can grow into a sizable nest egg.
You might want to open a 529 savings account to set aside funds for college costs. You can even establish an account in your own name before a child is born and then transfer it to your child’s name later. Another option is to put money in an IRA to be used for your own retirement or for your children’s college education. Discuss your options and tax implications with a financial advisor.
Be Ambitious, but Realistic
With higher education costs soaring, the key to building a substantial amount of savings is to start early. The more you set aside, and the longer it can collect interest, the better off your children will be when they’re ready to enter college. If you can’t save as much as you would like, remember that grants, scholarships and loans may be available to help. Make your own retirement and your family’s current financial security your first priorities as you save for college.