Business Financial Advisor Brian Douglas of GuidingPoint Financial Group in Memphis has a few thoughts on getting a college saving plan going. “Outside of retirement and purchasing a home, there may be no more important financial goal that requires preparation than your children’s higher education tuition,” he says. “While saving for college may seem daunting, planning early and saving thoughtfully can make the goal more attainable for many parents.”
He suggests four steps that can help:
1. Estimate college costs: Historically, the cost of college has risen faster than the standard rate of inflation. Check out free online college savings calculators to estimate tuition and fees at public or private institutions, such as the website SavingforCollege.com. Use the estimate as a guideline for a conversation with your spouse about how much you’d like to contribute to your child’s education. Do you wish for your child to contribute? Will you cover the cost of books, room and board, and extracurricular fees?
2. Start setting money aside as soon as possible: There is no substitute for saving. Craft a habit-forming strategy, such as saving a set amount each month, putting aside a regular bonus or raise, or saving your tax refund. Remind yourself that even a modest amount will make a big difference in tackling your child’s tuition. When you’re ready to put your money to work, choose a savings vehicle that is right for your financial situation, risk tolerance and goal amount. One of the most popular options is a 529 plan, which is specifically designed to help families save for higher education. When money is withdrawn for qualified education expenses, no taxes are due on earnings accumulated in the account. Other tax-advantaged savings options include Uniforms Gifts to Minors Act (UGMA) accounts, Uniform Transfers to Minors Act (UTMA) accounts, tax-exempt savings bonds, and Coverdell education savings accounts. There are also taxable account options, allowing you to choose the vehicle that works best for your family.
3. Research financial aid options: It may be difficult to save enough to cover every education expense, particularly for families with multiple children or if you’re balancing other financial goals. Scholarships, grants and loans may help you fill potential gaps. The U.S. Department of Education allows you to forecast your family’s eligibility for federal student aid before you fill out the Free Application for Federal Student Aid (FAFSA) when your student applies for college. Many scholarships are available to high schoolers of all grades, so encourage your child to research local opportunities.
4. Revise your savings plan as your child ages: Periodically revisit your strategy to make sure it’s on track to meet your financial goals. You can re-prioritize and save more as college move-in day approaches. As your child ages, bring him or her into the conversation. Discuss the level of support you will provide. Help your child consider various career paths and higher education options, evaluating them to see if they are realistic and within your budget.