There’s no better time to start saving for your child’s time in college than right now. The earlier you start saving, the more time you’ll have for building a college fund. However, you should meet other financial obligations, like growing a retirement fund and repaying debts, before you focus on helping your child fund college.
Consider Money, Not Time
It’s difficult to give an exact optimum time to start a college fund for your child. Getting into a savings habit sooner rather than later is usually better because you can deposit smaller amounts in regular intervals to achieve your goal. If you start saving later, you’ll need larger deposits to reach the same goal.
So what goal should you have in mind? Experts suggest parents should save the estimated cost of tuition expected when your child is old enough for college. This can be difficult to estimate as college costs are always increasing. Financial aid amounts also vary. If your child fails any subject or decides to drop back to part-time study, these will also impact the costs. Costs also vary from college to college.
Fortunately, there are many experts researching estimates. CNN’s Katie Lobosco estimates attending a two-year community college should cost around $15,120. Students taking on four-year degrees should expect much higher costs. She estimates a public college student living on campus will spend $56,840 to complete a degree, while a student attending a private nonprofit college will spend $104,400.
The U.S. Department of Education’s Net Price Calculator Center can provide a more detailed estimate if you know which college your child wants to attend. It takes into account things like tuition, room and board, textbooks, and possible grants and federal loans.
What You Should Do Before You Start a College Fund
While starting a college fund early is usually better, experts concede that parents should prioritize other financial concerns first.
Preparing for retirement should be a key financial concern for all parents. You might not have the nest egg you need before your child heads to college, but you should be paying at least 10 percent of your paycheck into a retirement fund. If you don’t have the savings you need for a comfortable retirement, you’ll need to keep working through your golden years or survive on small social security payments. Your child has several other options for financing college, like getting a student loan, scholarship, or grant. Studies show the average family uses student loans to cover 20 percent of college costs.
You should also eliminate any major debts before worrying about a college fund. Get rid of your own student loans and high-interest loans, like credit card debt.
Finally, you should build an emergency fund. If something goes wrong, like if your car dies or you lose your job, you need to know you can cover it. Money experts recommend building a nest egg with enough money for between three and six months of expenses.
Only once you’ve got your own finances in order should you turn your attention to helping your child.
Get a 529 Savings Plan
When you make the decision to start saving for your child’s college education, it’s time to get a 529 Plan. This is a special savings plan designed for families putting money aside for future college expenses. The amount in a 529 Plan isn’t subject to federal taxes on its earnings or withdrawal. Many states also offer full or part tax deductions for the contributions you make to a 529 Plan.
The Internal Revenue Code created these savings plans, which are now overseen by state and educational institutions. It doesn’t matter where you open your state plan; it can be used for a child attending any college across the nation. This is ideal for students attending out-of-state colleges.
Since you can transfer a 529 Plan into anyone’s name, you can open one even before your child is born. Many financially savvy parents will do just this so that they have plenty of time to build college savings.
A 529 Plan can also be useful when you’re starting your savings journey. Most 529 Plan providers will help you estimate the right savings goal, so you know what contributions to make.
If you haven’t yet started saving for college, the best time to start is usually now. However, some other financial obligations should take precedence. Once you’re ready to start building that college fund, put aside part of your paycheck every week and watch your savings grow.