Saving for college can seem a daunting task for new parents, but it may not be as insurmountable as you think. Here are a few things to consider when developing a college savings plan.
Establish a Workable Budget.
New parents are often newly married, and one of the most important things to do at this stage of life is to establish a practical budget. Beyond just covering household expenses, your budget should include short-and long-term goals for getting out of debt and saving for retirement and college. Conventional wisdom teaches that if your interest rate on your credit cards is higher than the rate you would be earning on your investments, then pay off the credit cards first, then start saving. Talk with a financial planner or an INVESTMAX Representative to help establish a savings plan that will fit your budget and the future needs of your growing family.
You have many factors to consider in saving and planning for the financial future of your family. One thing you may not have considered is that your retirement savings is more important that your child’s college savings. Think about it: your child will have more options for paying for school than you will for funding your retirement, including student loans, grants, and scholarships, so don’t short-change your retirement accounts.
Don’t take the ostrich approach.
We all know what an ostrich will do when it senses danger approaching. That’s right; he sticks his head in the sand and hopes the impending disaster will pass by. Of course that approach doesn’t work for the ostrich, and it certainly doesn’t work for budgeting or saving for college. The idea of saving for college may not necessarily be something that you fear, but it may be something that you would rather avoid. Remember, doing nothing nets nothing, and saving zero now means you will have zero later… which leads to our next point.
Don’t wait until you’re in a better financial position.
As the old saying goes, a journey of a thousand miles begins with a single step; so you’d better start walkin’. Waiting until you get that raise next year, or until you get your house paid off in 2023 may sound like it makes perfect sense, but in reality (presuming you do get that raise next year) next year will have financial challenges of its own, and so will 2023.
Even if you can only invest $25 each week, start putting it away now and as your position improves, increase the amount accordingly. If you save $200/month at a modest 4% rate, your savings will provide $58,088 in 18 years!
And DEFINITELY don’t dip into your college savings account or using it as a slush fund.
There are always things that spring up and vie for our savings—vacations, leaky roofs, transmission repairs… but remember that if you dip into your child’s college fund early, you stand to lose principal and interest, and are likely to incur penalties. You should have income allocated for life’s little surprises in addition to your college savings fund.
How much will 4 years of college actually cost?
Unfortunately, no one can answer this question exactly, but we can calculate pretty closely based on current tuition costs and historical inflation rates. Check out the College Savings Calculator right here on myMAX.com. http://www.mymax.com/calculators/how-much-should-i-save-for-college.html.
For more information, download The College Board’s free report, Trends in College Pricing. Trends in College Pricing provides information on changes over time in undergraduate tuition and fees, room and board, and other estimated expenses related to attending colleges and universities. The current report includes data through 2011-12 from the College Board's Annual Survey of Colleges, and reveals the wide variation in prices charged by institutions of different types and in different parts of the country. http://trends.collegeboard.org/college_pricing/
College Savings Options [link where appropriate]
Whether you consider stocks, mutual funds, money market accounts, student loans, or a combination to help you reach your college savings goals, it is important to get expert advice. For more information on how MAX Credit Union can help you get started on a college savings plan or maximize your current plan, visit any of our conveniently located branches, or call the myMAX Service Center at 334-260-2600 or 1-800-776-6776.
Also, be sure to visit our Learn and Plan – Calculators section. There you will find loan calculators and other tools to help you reach your savings goals.