6 tips to save college for parents who start early

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<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Life is expensive, and as a parent sometimes the more immediate expenses have priority over long-term goals like saving for University. However, at some point you will need to strengthen this college savings fund, even if it means starting late. Really late. "Data-reactid =" 16 "> Life is expensive, and as a parent, the most immediate expenses sometimes take priority over long-term goals, such as saving for college. you have to start very late.

<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "One of the most exciting things about college in general In contrast to other long-term savings goals, such as retirement, the investment horizon is generally not longer than 18, according to Michael T. Johnson, a licensed financial planner and founder of Flagstone Financial Management. "If we start late, the time horizon could be reduced to one figure," he said. "Data-reactid =" 17 "> One of the challenges of college in general is that unlike other long-term projects, According to Michael T. Johnson, Certified Financial Planner and Founder of Flagstone Financial Management, the goals in saving, such as retirement, do not generally offer more than 18 years of investment, but the time horizon of investment is generally less than 18 years.May be reduced to one-digit years, "he said.

That means $ 100 will be spent here and nothing will be done. If you want to finance a lot of your child's education, you need to save more aggressively. Here's how to do it.

<h3 class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "1. Follow the rule of the third"data-reactid =" 19 ">1. Follow the rule of the third

<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Today, the average cost of tuition In a four-year public school, the school costs $ 9,410 a year. This figure rises to $ 32,410 for a private university. These figures do not include additional expenses such as books, accommodation, transportation and course supplies. And the costs are only increasing. "Data-reactid =" 20 "> Today, the average cost of tuition in a four-year public school is $ 9,410 per year. $ 32,410 for a private university These figures do not include additional expenses such as books, housing, transportation and course supplies, and costs only increase.

<p class = "canvas-atom web-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Coming with as much savings is difficult for most families, even if they start early. The good news is that you do not necessarily need to save 100% of the total cost. "Data-reactid =" 21 "> It is difficult for most families to save money, even if they start early.The news is that it is not necessary to save 100% total cost.

<p class = "canvas-atom-text-canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "When planning how to pay the costs of education, The rule of thumb is to rely on one-third savings, one-third of your current income and one-third student loansAccording to Brian Canning, Certified Financial Planner and Partner at Abacus Wealth Partners. "data-reactid =" 22 "> According to Brian Canning, a good rule of thumb is to rely on one-third savings, one-third of your current income and one-third of student loans, reported a student loan. , Certified Financial Planner and Partner at Abacus Wealth Partners.

This means that you will need to budget to save at least a third of the total cost of college education to be on the right track. Of course, if you can save more, do it. Student loans must be a last resort because they can be expensive and hurt the credit of the borrower if they are not paid on time.

<h3 class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "2. & nbsp; Involve the whole family"data-reactid =" 24 ">2. Involve the whole family

Saving for university education should not be a burden that you endure alone. It may be helpful to seek the help of the whole family. This includes your child, who can potentially help reduce the cost of his or her education with strong academic results.

<p class = "canvas-canvas-text-canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "" If the student is old enough to have ACT / SAT brand and has a strong profile, I would start by finding schools that would be willing to reduce their tuition or offer some form of assistance, "said Michael J. Henzes, Certified Financial Planner and Owner of Open Wealth Network. "If you do not have a strong profile, ACT / SAT preparation can be a great investment, especially if you do not plan to qualify for help as needed." "Data-reactid =" 26 ">" If old enough to have ACT / SAT scores and a strong profile, I would start by looking for schools that would be willing to cut their tuition or offer some form of help, "said Michael J. Henzes, Planner Chartered Financial and Proprietary Open Wealth Network. "If you do not have a strong profile, ACT / SAT preparation can be a great investment, especially if you do not plan to qualify for help as needed."

Also let other family members, such as aunts, uncles and grandparents, know about your university savings goals. When holidays or birthdays arrive, you may consider applying for savings contributions rather than gifts in order to get there faster.

<h3 class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "3. Consider a plan 529"data-reactid =" 28 ">3. Consider a plan 529

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "As far as placing this money, 529 shots one of the best ways to save for college education for the child, said Dale Wong, president and chief investment officer of Missio Investment Management. These plans offered by the state allow you to invest after-tax money in an account, which then grows tax free. Withdrawals are also not subject to federal tax as long as they are used to pay eligible education expenses. "Data-reactid =" 29 "> In regards to where to put that money, 529 plans are one of the best ways to save." According to Dale Wong, president and chief investment officer of Missio Investment Management, these plans offered by the state allow you to invest after tax money in an account, which then enjoys a tax free taxation. Nor are they subject to federal obligations, taxes as long as they are used to pay eligible education expenses.

According to Wong, the more parents started saving 529, the more they could maximize these benefits. "But even late starters can still take advantage of some of these benefits," said Wong, "although the combination of investments they choose is different."

It should be kept in mind, however, that the costs of these schemes vary from state to state. "Some of the 529 plans are expensive in terms of purchase costs and / or operating expenses," Johnson said. Fortunately, you can invest in a proposed plan in a state other than where you live or expect your child to go to college.

"[Plan] the information is widely available and savers should do their research, "he said. "Ultimately, one must examine their personal tax situation and set the plan options as well as the tax benefits and make the best choice according to their situation."

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Wong pointed out that the maximum that a parent can contribute to a 529 plan is currently $ 15,000 per year per child. "However, the code allows you to contribute to a contribution of up to five years in the first year of the plan if you have the funds to do so," he said. Therefore, if you end up with a bargain, such as a legacy or a bonus, it makes sense to contribute as much as you can and enjoy the extra years of tax free growth.

<p class = "canvas-atom-text-canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Another option proposed by some states is to pay the fees Plan 529, which allows you to save on today's tuition fees. 18 prepaid lesson plans availablealthough only 11 are currently accepting new candidates. Nine of them impose residence requirements. "Data-reactid =" 37 "> Some states also offer to pre-pay tuition fees with the help of a 529 plan, which allows you to keep your savings at the current tuition rate. currently 18 prepaid services, tuition plans available, although only 11 currently accept new candidates, nine of whom have residency requirements.

"Prepaid lesson plans can be a great alternative for those who are already in a short period of time to pay for college tuition," said Canning. "With college inflation rates well above standard inflation rates (…), this can provide excellent protection for keeping tuition rates at today's prices while avoiding market risks." .

Do not forget that although these prepaid plans are designed to pay for tuition in a specific school or group of schools, it is often possible to transfer or pay back the money if your child ends up attending another school.

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Whether you choose to save in a 529 plan or not, it is easier to reach your savings goal if at least some of the money is invested rather than in a low interest savings account . However, with a shorter investment horizon, you do not want to expose your savings to too much risk.

The age of your child will help determine how to invest. "If they're already starting their high school years, for example, parents will want to invest more cautiously to protect the principal of the account," said Wong. It means staying with fixed income instruments, bonds and perhaps dividend paying stocks. "If the student is younger and the college is still three years or more away, it would be prudent to introduce greater exposure to the actions," he added.

<h3 class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "6. Address the reasons for your delay"data-reactid =" 43 ">6. Address the reasons for your delay

Finally, once you're on the right track to save money for college, it's a good idea to consider why you're late. It may be the simple fact that your family had other priorities in previous years. On the other hand, this could help identify a potential problem in your overall financial plan.

"The family has to ask what has prevented them from saving until now," said Henzes. "For some, it is necessary to adjust the priorities in order to start financing an education account; for others, there is simply no room in the budget for university savings, so it's a matter of earning more (parents and students) through a sneaky or part-time job. "

Whatever the reason, said Henzes, it's important that you do not fight to start late. "If you feel overwhelmed, you are normal. It's a complex process, "he said.

The fact is that you are starting now – and it's 100% better than not saving anything at all.

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  • This article originally appeared on HuffPost.