If you’re a parent of young kids, chances are that paying for college has crossed your mind once or twice. After all, as parents we want to help our kids attain the best education possible so they can make a successful transition from childhood to adulthood.
The wrinkle in all our optimistic planning is the ever-rising cost of college tuition in the U.S. Not only is it increasing year over year, but the notion of saving enough is starting to feel more and more out of reach. That’s why it’s key for parents to start saving, in some way, as soon as possible — and that way is to start putting money away into a college fund today.
If you’re looking for some ways to save for your child’s college, here are some helpful options to consider.
Start saving as soon as possible
Reports show the average cost of college in the United States is approximately $38,270 per student per year. This number has more than doubled in the 21st century with an annual tuition growth rate at just over 4%. While knowing this can be a bit overwhelming, it also highlights how important it is to start saving for college costs as soon as possible.
To get started, the first question you might ask is: “What are the best college savings options?” Here are some of the more common savings options available:
- Open a 529 account
- Put money into eligible savings bonds
- Start a Roth IRA
- Try a Coverdell Education Savings Account
- Contribute money into a custodial account
- Invest in mutual funds
- Take out a permanent life insurance policy
- Open a home equity line of credit
The next question you might ask is: “How much should I put toward college savings and how often?” The answer to that depends largely on what kind of savings option you choose, as well as what kinds of rates and terms it offers. It is also helpful to remember that rates may change over time.
One of the best ways to get a good long-term idea is to use an investment calculator. By using an investment calculator, you will be able to better calculate what you might expect over the long haul and how much money you would need to contribute to hit your savings objectives.
Another option is to visit with a financial planner, such as a Zions Bank Wealth advisor.
Explore prepaid tuition programs
Prepaid tuition programs are another savings option aimed to help reduce the future cost of college. The general idea with these programs is to allow parents (or relatives) the possibility of prepaying tuition at today’s rates, thereby avoiding the rising costs when the child reaches enrollment age.
Prepaid tuition programs have their pros and cons.
- Pro: Prepaying for tuition alleviates the investment risk, since you don’t have to worry about whether your investments will grow fast enough to cover the rising costs of college.
- Con: Not only do you have to have the available means to prepay for tuition, but a prepaid tuition program typically locks your child into attending a specific school that may not align with their changing interests. To plan for this scenario, be sure to research the transfer options available with the program you’re considering.
Plan for extra money in your budget
It wouldn’t be unreasonable to assume that there will be occasions where you’ll come across extra money in your budget from time to time. These occasions might be linked to a tax refund, a raise at work, or even a little extra cash if your fixed expenses decrease over time. In any case, these extra cash flow opportunities are an excellent chance to sock a little more away toward your child’s college savings.
Let’s say you earned a hefty bonus, or your kids are getting a little older and you no longer need to budget for childcare. Simply plan for what you want to do with that extra money, or how you would like to appropriate it toward a college savings account. Whether you allocate all of it or a percentage isn’t as important as simply having a game plan in place for when those extra funds do come around.
Cut fixed expenses where you can
Cutting monthly expenses is a great way to save money for your child’s college fund. Too often, we waste money on everyday purchases, needless subscriptions or luxuries we don’t really use or need. This money could easily be saved and invested.
To start, analyze your monthly budget and spending habits to find out where and what you spend your money on. Chances are you will be able to cut back or even eliminate certain expenses that don’t matter so much. You may also consider refinancing debt for a lower interest rate or reviewing your monthly bills (phone plans, internet service, etc.) to see if any offer promotions or can be lowered. Cutting fixed expenses can all be done using money saving apps.
We’re here for you — no matter where the road takes you.
Zions Bank is here for you with numerous tools and services to help you improve your financial situation now and for the future. Our branch teams are ready to answer any questions or support you in any way you need by phone, online, or in person. Visit a local Zions Bank branch to speak with a banker today.
