The cost of going to college is at an all-time high and it’s only continuing to rise. In the next decade, the price of college is expected to double once again. Given this situation, many parents are trying to start saving for their child’s college education early to help minimize the loan burden on their child in the future. But how to calculate how much to save for college, when to start and what is the best way to save for college? Find the answers in this article.
How much should I save for my child’s college?
As we’ve said above, unfortunately for you, the price of college is going up every single year and it’s expected to double in the next decade. On the flip side, financial experts say that you don’t actually need to save the full amount - it’s best to shoot for one-third of the estimated college cost. This is explained by the fact that the prospective student can cover the rest with scholarships, grants, financial aid, work-study programs and student loans. Surely, if you have a lot of extra income to spare, you can save more than one third. After all, you can always find a good use for that money even if you don’t need it in the end. So how much should you have saved by the time your child goes to college? If they are going to be starting college in 15 years, you need to save about 60 thousand dollars for a public college located in-state, 95 thousand dollars for an out-of-state public school and almost 119 thousand dollars for a private college.
How to save for your child’s college?
About 70% of parents don’t know that there’s a savings plan specifically dedicated for college savings, just like 401k is dedicated to retirement savings. It’s called the 529 college savings plan and using it allows you to grow and withdraw the money tax-free. Most 529 plans also offer investment plans that help you grow your money without your involvement. Most of these plans are age-adjusted when it comes to risk, so they become more conservative as your child grows. Using this savings plan can save you hundreds of dollars a month compared to using regular savings accounts.
Put money aside for college every month
Even though the total amount of money that you need to have saved by the time your child grows up can look very daunting, breaking it up into small monthly contributions can make it seem much more manageable. For instance, if your child is expected to go to college in 15 years, you need to save 210 dollars per month for a private college in-state, 330 dollars per month for a public school out-of-state and 415 dollars for a private university. Of course, these sums only work if you start saving very early in your child’s life.
Other ways to save for college
The best way to save for college is to decide on the amount and stick to it month after month. But what if you can’t save the full sum? Something is better than nothing, so try saving whatever you can even if it’s just 25 dollars a month. Your child will definitely appreciate any help you can provide. It can also be a good idea to ask your family and friends for help. For instance, you can ask family to consider contributing a small amount of money to the child’s college savings plan instead of giving a traditional birthday gift. If the child is young - they won’t know the difference, but you will definitely quickly notice it in their 529 account.