As parents, we’re hardwired to provide our children with the best. Whether you grew up rich, poor, or in between, you want to provide a better lifestyle for them than you had growing up and to equip them to conquer the world. College isn’t for everyone but if a college education is something that you aspire to provide for your children, these 7 ideas will give you a better understanding of where to start and tools that you can implement to help you set up your own unique plan tailored to you and your family.
Set up a college savings plan – There are many options for setting up a college plan for your child including a traditional savings account but the 529 plan is one of the most flexible of the options. 529 plans have federal tax advantages and potentially state tax advantages as well. They also have high contribution limits enabling you to save more money than similar options. Additionally, 529 plans are invested for you, which will help to take the guesswork out of where to allocate the money and will give you some additional growth in the form of stock market returns. Finally, 529 plans can also be used to fund alternative forms of education besides traditional colleges and can be transferred to qualifying family members in the event that your child chooses not to go to college
Have a plan – Making a plan should start with figuring out how much you could potentially need for college. This can be done by looking at projections for the cost of college when your child is of age and looking at the cost for different types of college (public vs. private, in-state vs out of state). After figuring out what you need, you can figure out what you’re actually capable of doing by establishing a budget. It’s important that you discuss your plan with anyone who will be helping you with the plan, whether it is with a partner or a parent. Maybe your plan includes paying for tuition but not room and board or maybe it’s paying for undergraduate school but not graduate school or perhaps you’ll pay for in-state tuition but not out of state tuition. Whatever plan you decide on, think about it in advance, before your child gets to the stage where they’re picking a college. Once your child gets to college-age, talk openly to them about what you plan on doing so that their expectations are in line with your plans.
Set goals – Human beings are goal-oriented and we want to achieve our goals. If you have a goal set, you’re more likely to try to plan to achieve it. For instance, If you set a goal to save $1,000 a year, you can work back from that number to figure out how much you need to save monthly or by paycheck to meet that goal. Setting goals that are attainable is vital to your success. You should also be sure to track your goal throughout the year and make changes accordingly to help you meet them. Be sure to reset your goals at least annually or as your income or expenses change.
Start saving earlier rather than later – When you hear some of the large numbers that you’ll need to save for college, you may feel overwhelmed. The earlier you are able to start saving, the better you will be positioned to meet your goals and the less overwhelmed you will be. Starting earlier rather than later gives you more years to make contributions and it allows you to take advantage of the power of compound interest. Compounding is the act of your interest earning interest. Even if you’re reading this and you no longer have a newborn, that doesn’t mean that it’s too late and you can’t start saving. Starting sooner rather than later works no matter how old your child is and even if you have a child that is in their senior year of High School, a year of savings is better than nothing at all.
Do what you can – Something is better than nothing. Often, our brains are trained to reach for the stars and we have an all or nothing mentality. It may be that at the end of the day, you’re only able to save enough for one or two years of college or maybe you’ll only be able to save up enough for books each year, but its something that will contribute to your child’s financial well-being in college and takes some of the financial responsibility off of their shoulders.
Ask for help – While toys are great, let’s be honest, they don’t last forever and at some point in time, your child will lose interest in their toys or outgrow them. So for birthdays, holidays and baby showers why not give people the option to add to your child’s college plan instead of or in addition to a gift. The best way to go about doing this is to ask for it directly so that there’s no confusion about what kind of gifts you want. If you don’t feel comfortable being so direct, you can start out by making the request with people who have asked you what they should get your child for a gift.
Don’t be afraid of loans and leverage scholarships and grants – After you’ve made your plan, set your goals, asked for help and done everything that you can, you might find that you still have a shortfall. There are typically 3 ways to make up for this shortfall. Everyone is not eligible for grants, but if you are, apply for as many as possible. Scholarships are extremely underutilized. They take a little bit more work to attain but every dollar counts and applying for as many scholarships as possible will only help alleviate any debt you may have to take.
Loans get a bad reputation, but just like with so many things, sometimes there are bad practices that can cause something to get a bad reputation. Despite their bad reputation sometimes they are the only option that people have and the good thing about them is that they have the lowest interest rates of any other loans available to you. In order to have good practices with loans, try to line up the amount of money your child is going to take out with how much they will feasibly make when they graduate from college. If your child is planning on taking out $30,000 a year in loans and the career path they choose will only pay them $30,000 a year, maybe it’s a good idea to choose an alternative school. Talk openly and honestly with your child about the costs relative to their future reward and do some modeling of what monthly payments will look like after graduation. Educating your child will not only help them to get on the same page as you but give them some valuable budgeting skills as well.