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Saving for your child’s college fund can be a daunting process. The expenses of college can be a big burden for a lot of people — you may even be having trouble figuring out exactly how much to save for college. For those with more than one child, it can be even harder to prepare for the costs of education. From tuition to books, a college will cost as much as a small home in the near future. To prepare for this when your kids are young, there are a few easy steps you can take to make the process a little more manageable.
Set a goal
Over the next ten years, the cost of a college education is set to double. The large sums of money that will come due once your child starts school may seem like an unrealistic sum. There are ways to break the amount you’ll need down into an amount you can manage little by little.
Let’s say you have two children that are currently ages 8 and 10. You know you have 8 years before your oldest will start school and your youngest will soon follow. Set a goal of how much you think you’d like to contribute to their education when the time comes. For example, if you estimate it will cost roughly $500,000 to send both kids to school, maybe you’d like to cover $200,000 of that. The remaining $300,000 can be split between scholarships, financial aid, loans, and your children’s contributions.
You may think that isn’t enough but you should always keep in mind the resources available to you. Scholarships can be applied for and if you qualify, some tuition can be covered by financial aid. You can also co-sign some loans with your children to have them take some ownership in their own education. Remember that you still need to save for retirement and you can’t get a retirement loan like you can a student loan.
Now that you’ve set your target goal, you have a clear vision of what you’ll need. You take it from there and get started on how to hit your number.
Set a monthly budget
Once you have your savings number, it’s time to break it down by year and by month in terms of how much you should be saving. In our $200,000 example over 8 years, that boils down to $25,000 a year in savings or $2,083 a month. This number may seem scary but remember it’s only temporary and if you can budget and invest accordingly, you can make this happen.
One easy way to start budgeting is when your kids are even younger. Kids under the age of five and six for example usually need full-time childcare if both parents work. Let’s say you’re spending $2,000 a month on your baby’s daycare. Once they start kindergarten, keep putting that $2,000 a month away into savings until your child starts college. You already lived without that money and budgeted for that amount to be spent every month.
In our example with an eight- and ten-year-old, think of ways you can save more money each month. Maybe you stay in a smaller house so as you pay that down and you can squirrel away money there. You can also save on car costs by becoming a one car family if that is feasible.
Take a look at your monthly spending, make adjustments and set a budget for everything you can. Although skipping your daily coffeehouse run will help, your home and your cars are the biggest way to make a difference.
A 529 college savings plan is a way to save some money through investing. These plans function much like a Roth IRA in that you aren’t taxed on the growth and you will have tax-free withdraws. If you find one that is easy to contribute to, grandparents and other relatives can also contribute over the years. This will make a great birthday gift every year.