The U.S. Census Bureau reports that the average college graduate will earn about $1 million more than high school graduates over the course of a lifetime. Additionally, the cost and tuition of attending a four year college has increase 51% over the last ten years. If your high school graduate plans on attending out of state, or wants to go to a private institution you will need to figure in additional amounts to cover those costs.
While you may be aglow with pregnancy and contemplating the important task of choosing the perfect color for the baby’s room, reserve some time to sit down to come up with a college saving plan. Even a $25 dollars a week will net you approximately $48,000 with a somewhat modest interest of 8%. Don’t kill yourself taking out money needed to feed the family to save for your child’s future education, but do set aside a reasonable amount that, over the years, will help you finance college.
Jump-start your college fund with a few other saving ideas:
- Eat at home. Cut down on our dining bill by cooking at home. Buy generic or store brands to save additional cash.
- Invest in a wholesale membership club to buy in bulk. Sign up for the coupons and discounts to keep more money in your pocket.
- Shop for a better cell phone plan. Look at what you are spending a month and check to see if there a discounted service provider in your area.
- Put the cash back credit from your credit card into a savings account.
- Cut down your cable plan.
- Make gifts instead of buying them.
- Turn off the lights. When a room is not is use, cut the power to the electronics. They can hike up your electric bill.
- Shop at thrift stores for gently used clothes for hanging around the house.
Consider a 529 Plan
A 529 saving plan is designed by the government to encourage families to save money for college students. There are two types of savings plans: prepaid tuition and a college savings plan.
A prepaid tuition plan allows you to actually purchase tuition at participating colleges or universities at the present price. Usually it covers only the tuition and some fees, not room and board, books or other expenditures. The prepaid plan lets you lock in on a lower price now, avoiding the extreme rises in cost that may happen in the future.
A college savings plan allows savers to put the money aside without paying federal tax based on tax calculators. Many states also withhold its taxes as well. Spending the money on tuition is also tax free. Those who invest in a college savings plan are allowed to save in excess of $200,000.
Make Your Money Work
If you don’t think a 529 plan will work for you, keep saving and then take your money to a financial advisor or stock broker and invest it in stocks and bonds. When your child is young, invest largely in stocks to make your cash work for you. As your child approaches college age, switch your investments to bonds. By keeping your money in investing you will gain more capital than letting it just sit in a savings account.
What can you invest in? Look at the selection below for a few ideas on where to stow your cash.
- Sock your money away in a CD. Certificates of Deposits with five year rates will have a higher rate of interest return that six month CD’s. You won’t be able to touch the money, so it will protect you from impulse spending.
- Invest in index funds. These funds track the returns of a stock markets index. The cost of entry is low, and you can typically buy shares for pennies on the dollar.
- Open a discount brokerage account, educate yourself about the stock market and make trades.
- Invest in mutual funds. If you don’t have the time or inclination to learn about the stock market, mutual funds are a good option to allow professionals invest your money.
Don’t Touch It
Whatever you do, keep your hands off the college fund. A 529 plan can charge 10% in taxes if you use the money on anything other than tuition. Once you dip into the savings, it becomes difficult to stop. Replenishing the money taken when you then resume regular contributions can make it doubly hard for those with tight budgets.
About the Author
Debra Wilson is a social media advocate at the student credit cards comparison website, CreditDonkey. She hopes you give your child a better leg up in life by starting to save early. When tuition prices rise another 50% in the next ten years you will be glad you did.