The U.S. has some of the most expensive university tuitions in the world. Parents can expect to pay anywhere from 10 to 50 thousand dollars, annually. That’s huge! When planning to save for college, experts suggest parents should aim to cover one-third of overall tuition fees. The other two-thirds should be covered by financial aid and current wages (earned while in college).
On the low end, parents need to save roughly $13,200 by the time their child graduates high school. If that number seems far off from what you’ve currently saved or if you’ve yet to start saving at all, these steps can help set you on the right track in preparing for your child’s future.
It’s Never Too Late to Start Saving Now
While saving for college isn’t likely a top priority when children are first born, its benefits are undeniable. If you saved just $50 per month from the moment your child is born until they turn 17, at current return rates, you’d have around $20,000.
However, having even a piece of that potential $20,000 is better than nothing!
Use the 2K Rule
For those who have yet to start saving, Fidelity Investments created the 2K Rule. The rule assumes your goal is to save enough to cover 50 percent of the annual costs of a four-year public school program.
To determine whether you’re on the right track just multiply your child’s age by 2,000. For example, if your child is ten you’d multiply ten by 2,000 to get $20,000. This total represents the amount of money you should have already saved to date to stay on track to cover 50 percent of their tuition (assuming you continue to save at the same rate).
Start a 529 Savings Plan
Although it may seem logical to set up a college savings account in your child’s name it can make them ineligible for certain financial aid programs. Instead, experts suggest opening a tax-advantaged, state-sponsored 529 Savings Plan. These plans can boost college savings since investment earnings and are not subject to federal tax.
Set Up Automatic Transfers
When it comes to saving for college tuition, consistency is key. So, while many parents may want to wait until the end of the year to determine the amount of money they will put aside for college, that’s not necessarily the best way to save. Instead, consider bi-weekly or monthly automatic transfers. This way, regardless of other expenses that may arise during the year, a small deposit will consistently be added to the college fund.
All parents want to provide the best for their children, but it can be difficult to juggle daily expenses while also saving for the future. Fortunately, a little planning and consistent contributions (even small amounts) can help ensure your child has a helping hand in paying for their educational future.
Have you started planning for your child’s educational future yet?
Kali Muir is an ambitious freelance writer with a BA in Communications. She was born in Canada but has since lived in Norway, Denmark, and England. Her work experience is as diverse as her past addresses, including roles in technical communication, corporate communication, marketing, and article writing. She has experience working in varied business sectors: Oil & Gas, Engineering & Technology, Clothing & Equipment Retail, and Creative Writing. Follow Kali’s professional and personal journey at www.kalimuir.com, or connect with her on LinkedIn and Twitter.