A Guide to Saving for Children’s College Education
When you think of saving for future expenses, the cost of educating your children is one of the most important financial needs that you should consider. College education does not come cheap and educating your son or daughter in a little known institution rarely has much value.
There are two aspects to saving for college that make it a much more attainable target than retirement saving. A look at current costs of education at a college of repute will tell you how much you will need in present day. With some research, you can find out how the cost has kept pace with inflation in the past. This will help you estimate how the fees and costs may look in the future, with fair accuracy.
You know exactly when you will need the funds so you also have a clear idea of the duration within which your investments and savings will have to yield the final sum. Unlike your retirement fund, your college fund has a specific target in dollars as well as a clear time limit. This is a great advantage when you need to pick and choose investment options to build the fund.
Starting Early in Life
Beginning your kids’ college fund early in your career gives you a clear advantage. The sooner you start accumulating funds, the better returns you gain, thanks to compound interest. In fact, if you are lucky enough to start investing during an economic boom you may build up your college fund well before the deadline. Then you can shift the investment to safe avenues like bonds so that they continue to earn steady income while being protected from the vagaries of the economy.
Using Stocks to Get the Best Returns
Many experts advise using stocks to build your college fund. Stocks offer the best returns of all investment options when you look at long term returns. Since your need for the college fund is still years away, you can afford to make optimal use of these high return investment avenues to build up the college fund with a much smaller initial investment portfolio.
Investing in 529 Plans
A 529 plan is one of the most frequently used avenues to create a college fund. There are many benefits to saving with these plans. Anyone can contribute to the account and claim full tax rebate on the earnings here. If your child does not opt for a college education, you can simply move the accumulated sum into the account of other family members. People with any income level can open and maintain a 529 plan without restrictions of any kind.
The money in this account can be used for the child’s education at any age. The government encourages saving for higher education by offering tax rebates on the money you pay towards your child’s tuition. These varied benefits make it easy for you to achieve your target quickly and easily so that your child is assured of the best possible education from reputed institutions when he comes of age.