How to Start Saving for Your Child’s College

Looking at the cost of college tuition these days might cause you to do a double-take. How did the cost of school increase so much in the past couple of decades? Years ago, college was less expensive, and it was much easier for young professionals to get started in non-STEM-related jobs without a degree. Nowadays, college is more important than ever for many careers. Young people are expected to have a college degree for most professions and pay hundreds of thousands of dollars for that education.

In all likelihood, college tuition will only continue to rise. It’s essential to start saving now so that no matter what your children choose to do in the future, you are prepared to support them. 

When Should You Start Putting Money Aside for a College Fund?

It is NEVER too early to start a college fund for your child. Most financial experts recommend saving as soon as your child is born, especially if you have or hope to have more than one child in the family. Even if it’s only $50 a month at the start, this will add up over time. Starting early ensures you are financially prepared if they want to attend a more expensive school or plan to pursue a Master’s or Doctorate when they get older.

Four Ways to Contribute to a College Fund

Saving for college is just like saving for retirement — investments are critical to earning what you need. However, you have a variety of options depending on who is contributing, how much you want to save, and how flexible you want your investments to be: 

  • 529 College-Savings Fund – This is the most common type of college fund, as it provides education-specific tax benefits and is easy to gift from grandparents and other family members. 
  • Roth IRA – These investments offer unique benefits in that early withdrawal fees are not applied to funds used for education, and they do not count as part of your income on the FAFSA (financial aid application). However, they are also not designed specifically for college funds and limit how much you can invest each year. 
  • U.S. Savings Bond – Bonds are safer investment options with several tax benefits and are often given as gifts from family members to young adults. 
  • Mutual Funds – If you plan to send your child to a more expensive school, mutual funds can help you save more quickly and limit how much you can invest. You or your child can also use them for other expenses if they receive scholarships or choose an alternate educational route. 

The Importance of Minimizing Debt First

While it’s essential to start saving for your child’s education soon, it is even more critical to minimize your debt first. Your child will have plenty of additional resources for college education funding — from scholarships to federal financial aid. Still, you only have one option when it comes to the debt attached to you. When you focus on creating wealth with your finances first,  you can create better opportunities for your child(ren) throughout their life.

How to Talk to Your Children About Their College Fund

Once your child reaches high school, you should start having conversations about their future: what they plan to do and how you as a family will support that. It is critical to set realistic expectations for your child, so they know what they can count on for help and what they’ll have to do on their own. Some topics you should discuss: 

  • Do you want them to contribute to their college fund? 
  • Are there limits to their college fund? (such as attending an in-state school or keeping grades up to receive tuition payment)
  • Will your financial help include rent, books, and other expenses?
  • Will you pay for all of their schoolings if they decide to pursue a Master’s/Doctorate, or will only a Bachelor’s degree be covered by the college fund?
  • Can they use their college fund for other things such as travel, a first home down payment, etc., if they receive scholarships and can afford college independently?

The sooner you start planning, the more secure your child’s transition into adulthood will be. To learn more about ways you can start saving for your child’s college fund, contact the Sovereign Financial Team today. 

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