How To Save For College When You’re On A Budget
Kids cost money. Three of the truest words you will ever hear in your life when you first start on your way to creating a family is that ‘kids cost money’. From diapers to clothes, children never stop being a financial cost to you and your partner as they grow, and it’s one of those things that you accept when you want a baby, and one of the biggest expenses that you can imagine for your child is their future. Not the designer labels that they may ask for when they are teenagers, but their college costs.
Saving for college is going to be a priority for your family, especially when you want to be able to cover all of the costs for your children so that they get the best education that you can afford. A solid plan is needed for the education of your child, and as you are their parent it makes sense that you would want to start this as early as possible. Families have a ton of financial goals in life; including building an effective emergency fund and paying off debts from your own college years. It’s usually a student debt of your own that prompts you to want to save for the education of your children in the first place. You don’t want them to find themselves in the same position as yourself, forever paying toward their college life for the remainder of theirs. It can feel impossible when you look at the overall cost of college today, and while you may be tempted to look at bankruptcy info to clear your own debts and have a clean slate to save with, it’s in your interest to look at your options as a whole. College is a cost that is skyrocketing for many families, and this is why it is so important for you financially to plan this when the children are tiny. You can rope in family members to add to their college fund instead of giving gifts at birthdays or Christmas; education is the one gift that you can give your child that is truly priceless.
The average cost of college is around $25,000 per year, and with four years of college ahead, that’s a lot of cash to save up when your income isn’t as high as you would like it to be in the first place. You can check out this very simple calculator to work out what you would need to save every month to meet the costs of your children’s education. You can see whether you can afford the total cost of their college costs or only part of it, and then you can work out what you can do to make up the remainder of the amount if you want to cover the whole thing. The good news is that even if you can only save a third of the cost, that’s a significant dent in the overall costs that you will have to face. You need to look at your income as a whole to work out how you will cover all the costs if you only save a third. It’s a past, present, future issue: past income is what you’ve saved over 18 years of their life. Present income is what you can use out of your paycheck while they’re attending college, as well as scholarships and grants that can be applied for at the time of college entry. Future income is what you can borrow on behalf of your child, or what they themselves can borrow for their education. Saving a third can mean you buy yourself some time to save for your child’s education.
The one thing that you should never do, though, is dip into your retirement to pay for college. College is an asset, there is no disputing that, but you cannot compromise your future after work to afford it. Once college is done, you still have your retirement ahead of you and you should be looking at ways that you can get through college without touching that money. Once you work out what you need to save, you need to work out where you can get that cash from.
529 Plans: Common savings accounts for college, 529 plans can let your cash grow while being free of income tax and you can read here all about the tax benefits that come with a 529 savings plan. Some of the 529 plans can be self-directed, while others are prepaid tuition plans. You can pay ahead on the tuition in order to keep the current tuition rates for your child. You can do a private plan as well, where colleges like Duke, MIT and Princeton are on the list. The certificate that you buy is great for at least thirty years, although the actual admission to those colleges is not a guarantee just because you’re saving for it.
Roth IRAs: Another option that are usually based with retirement planning, but some parents choose to use these for college savings as well. There is a lot of flexibility with a Roth IRA and there are many more investment choices than with a 529 plan. There are pros and cons to a Roth IRA as with anything, so make sure you research first.
If you are saving for your child’s education on a low income, you will need a strategy to ensure that you save enough. Think about how you can build up an emergency fund that covers six months of expenses at home for you and look to employer match for your 401(K). By looking at the ways that you can save money, you can ensure that your children will be covered for their education. College is not priceless, but education is, and you want to ensure that you give your children the best possible chances for their future. There are always ways and means, and the earlier you start, the better off your child will be.