A college education is very expensive, and will only get more expensive as time goes on. Naturally, a lot of parents, and even parents to be, are saving up money for the education of their children very early in their lives. With time on their side, they would do much better by starting as soon as possible. While many people scoff at the idea of starting so early, it is increasingly becoming necessary, and will make the lives of you and your children much easier. If this sounds familiar, here are four tips to keep in mind when starting to save for your children’s college fund.
A lot of people love giving gifts to newborn children. It would be smart to ask for cash or savings bonds in lieu of gifts. You can then set up an account specifically for them, and start earning interest on this money, which will help you save money even faster. This is a perfect gift for a kid, since toys or other items will be worn out or broken within months. $500 dollars deposited into a savings account when a child is born will grow to a sizable sum over time.
Sign up for a 529 plan as soon as your child is born. This will help you to save money and avoid taxes. A 529 is similar to a 401k in that regard. With a 529, you can save money for any educational expenses, such as tuition, books or other supplies. A 529 is crucial for anyone who wants to invest their money tax free for the benefit of their children’s education. Luckily, with a 529, there are no age or income restrictions, so there is really no excuse not to have one.
Get your child involved as much as possible. Let them know the importance of an education. When they have chores and get paid, partition a chunk of that money into a savings account. When they get their first real job, encourage them to put a small amount of money into their savings account. If you can afford it, offer to match them dollar for dollar. This will give your child a great incentive to invest in their future.
Right now, interest rates are not good. In fact, with inflation, you are literally losing money by leaving it in the bank. You should use stocks and mutual funds to boost your savings. Instead of gaining 0.5 percent a year on your money in savings, you can earn around seven percent on your money in stocks. Keep in mind though that your results may vary and every year is different. When the child is nearing college age, put the money back into a savings account, since you do not want to risk money that you are going to use soon.
There are so many tools to save for college. Remember, the most important thing to do is start early, and save often. The power of compound interest is great, and will help you reach your goal with relative ease. As time goes on, saving money can become very difficult, so make sure to get started as soon as you can. Do not be worried about starting slow either. Even $20 a month will go a long way in the future.
Trina LaKwonda writes about parenting, personal finance & education. Her most recent piece is on
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