Planning Ahead: Is Your Kid’s College Fund in the Works?
Having kids can require a lot of capital. From the moment the pregnancy test gives an affirmative, there will be doctor visits and hospital bills to contend with, not to mention the astronomical costs of meeting their everyday needs (and if you think diapers and formula are expensive, wait until they’re begging for a car). In short, even a good job and a plentiful savings account may not be enough to ensure that you come out ahead, especially if your family continues to grow. And you haven’t even begun to think about what’s going to happen when they graduate from high school. Of course you want your kids to go to college and have every opportunity to succeed in life (for one thing, they can’t live in your house rent-free forever). But how can you start saving for their future when you’re having enough trouble accounting for today?
Like anything in life that is worthwhile, you’re going to have to make some sacrifices when it comes to starting college funds for your little tykes. Impending adulthood can seem a laughably long way off when they’re still in diapers, but it comes up faster than you expect, and if they’re in high school by the time you start seriously considering a college fund, you’re going to be arriving to the game a bit late to be effective. Instead of waiting, do what any adult would do when they want to save money for a big-ticket item: work it into your budget. If your children are still young, you have one very big bonus on your side and that is time. Even if you can only manage to set aside $20-50 per month right now, it’s a start. And there are a lot of options when it comes to how to make that money grow.
While a savings account in your child’s name is probably the easiest route, it will not net you the return on investment that you need to spin your hay into gold. Not only that, but if the money is easy to withdraw, you may be tempted to do so in time of crisis, totally negating any advances towards higher education you might have made on your child’s behalf. Instead, consider placing whatever you save in a year into low-risk, higher-yield CDs (the rates are double or more what you earn on a savings account). Still, this is going to net you only a small return on your initial investment. You’d be better off opening a portfolio with stocks and bonds, which are slightly more risky than other options, but stand to earn you a lot more money in the long run.
Of course, the more money you put in the more you’re going to get out. If you can manage a minimum of $100 per month from the time of birth, you might actually be able to save enough money to send your child to college (close to $50,000 at an annual return of around 8%). If you nix the cable, cut back on eating out, or join a carpool to save on gas, you should be able to scrape together this meager amount each month. And in the long run, you’ll be glad you started saving now for your child’s looming college expenses.
Sarah Danielson writes for Tuition Agency where a child’s education is the highest priority. Home Tuition Agency understands that the needs of each and every child are unique.
