Article | 3:43 min read

Parents Should Begin Saving for College Early

Life Events

High school students studying in a library

Starting a family comes with a big range of emotions and responsibilities. New babies are hard work that require patience, energy, nurturing and money. They grow up fast and soon will be headed off to college. While teens don't require hands-on parenting like infants do, they still need money to pursue higher education.

There are many ways for a student to pay for college, but nothing is more effective than carefully saving money. Many parents wonder when they should begin to plan for this stage in their children's lives. The answer, of course, is as soon as possible.

Support Yourself First

Before you can take care of your child's future education, you have to make sure you are on financially sound ground. There are several different types of accounts adults should be putting money into. First, everyone should have an emergency account to sustain themselves in case of a job loss or other situation that might otherwise deplete your savings. This emergency fund should have at least three to six months' worth of salary.

Paying down your own debts should also be a priority. Prioritize high-interest credit cards and loans to eliminate them as soon as possible. Saving money will be easier once you are debt-free.

Having a healthy retirement fund is not only important to you, but also your children. If you forego retirement savings in order to pay for school and wind up without the means to sustain yourself later in life, your children will likely be the ones to financially support you. While there are alternate ways to pay for college, Social Security and retirement savings are essentially the only ways to get by during retirement. A good practice is to dedicate 10 percent of your paycheck to a retirement account.

Start Saving Quickly

Once you have a healthy emergency account, an established retirement savings plan and have reduced your debt to a manageable level, it's smart to begin putting away money for your child's future. U.S. News & World Report explained one of the biggest mistakes parents make when saving for college is not beginning early enough [1].

A common method for saving for college is a 529 college savings plan. These act similarly to a 401(k) account in that money is collected tax-free and is held until the time comes to use it. For a 401(k), that time is retirement; for a 529, that time is when a student heads off to college.

NerdWallet explained these accounts can be started earlier than you think; some parents-to-be begin one before their child is even born [2]. When he or she is born, the beneficiary can be changed without penalty. Starting early makes even small contributions worthwhile. If a parent puts only $50 a month into the account for 18 years, the 529 will grow to be about $21,000. According to The College Board, the average yearly cost of tuition and fees for a four-year in-state university is $9,139 [3]. This means that those 18 years of $50 contributions will bring a child through about two years of school at current rates.

Saving When They're Older

U.S. News & World Report explained another big mistake parents make is ceasing to make contributions to the 529 college savings plan at the beginning of their child's freshman year. In fact, parents can, and are encouraged to, continue to save for the coming years.

If you didn't begin planning for college when your child was young, don't worry. There are still options, and time, for you to begin saving. U.S. News and World Report said many parents neglect aggressive savings plans when children are young and wonder what they can do now that their child is beginning to think about college [4].

There is some risk associated with 529 plans, because market fluctuations can change how much will be saved. This doesn't matter much if you are beginning these when a child is just a few years old, but if college is just a few years away, it might not be the best option. There are age-based 529 plans for this situation.

These become less risky as the child approaches college age. When he or she reaches age 18, the plan is almost entirely cash and bonds, two very secure investment strategies.

[1]. 4 Costly Mistakes Parents Make When Saving for College
[2]. When Should You Start Saving for College?
[3]. College Costs: FAQs
[4]. Do 529 Plans Make Sense When Parents Get a Late Start Saving for College?


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