When you think about ways to save for college, you may think about financial intricacies to dwell into. However, you can ensure college savings with little financial planning and a bit of the right mindset.
Savings help us avoid getting things now so that we can get better ones later. Similarly, college savings help us get a good education in the later part of our lives. But the majority of the families aren’t even considering college savings an important aspect of their financial plan. According to a survey, only 50-60% of parents actually try to save for their child’s education. This has led to an increase in student loans in recent years.
Not only are parents burdened under the higher price tag of education, but even graduates have to face financial crises as soon as they leave college. The simple solution to the problem is to plan and save for your college at an early stage. This also includes creating a college financial plan.
Here are a few steps you may follow to initiate a great college finance planning process:
Balancing retirement and college savings plan
Many people often prioritize their children’s future above their retirement plans. However, this is not always favoring. An important aspect to remember is that your kid will have other aids like work-study programs, student loans, and scholarships too. On the other hand, if you are retired once, your entire life depends on the savings plan you have. Hence, you should fund your retirement first which will empower you to increase your children’s college savings. Sound too complex? Here are a few small strategies that will help:
- Go all in by funding your retirement plan to get the full employer match. You will get the benefits of 401 (k) contributions if you invest wisely.
- Try increasing the retirement savings through income elevations. Always try to divert the extra cash towards a retirement plan. You may include appraisals, incentives or income raises in this strategy.
- Start a dedicated bank account for college education and put all leftover cash in that account. Try your best to save some amount every month.
Chose 529 college savings plan
While yearly savings are rewarding enough, monthly funding is quite helpful too. You need to remind yourself that the savings will have a big impact on the future of your child. You may use the expert-recommended 529 college savings plan. This is a plan that offers growth and withdrawals that are exempted from tax. It also provides a great medium for liquid education expenses. When you plan on choosing 529 plan, you will have your money growing over time automatically on a monthly basis.
The 529 plans also offer significant estate planning advantages along with beneficiary flexibility. The tax-free growth offered comes with the added advantage of tax-free income when used for qualified higher education. Certain 529 plans even offer state income tax deductions for those contributing to in-state plans.
If you are having problems paying expenses for tuition fees, books, computers, or any other special education expense, you may go for 529 plan distribution. This is a federally tax-exempted scheme in which you can get up to $10,000 yearly for one beneficiary. Note that in these plans, you even have the upper hand of changing the beneficiaries without any increase in income tax, in case the earlier beneficiary refuses to go to college.
Roth IRA account
For people who are trying to secure long-term retirement savings, a Roth IRA is a preferred choice. Following this plan, contributions are made using tax-free withdrawals after retirement. However, in this plan, you won’t be able to qualify for a deduction during income tax return filing.
Roth IRA is a tax-free growing flexible plan option. as an investor, you can’t take out the penalty-free earnings until the age of 59. However, certain exemptions allow you to withdraw early under restricted circumstances. It is always a good practice to open an IRA account 5 years before your child’s first year of school.
A major drawback of this plan is that it does not allow for annual contributions above $6,000. Also, the withdrawals made in this plan are considered as income when your child tries to apply for financial aid. This may reduce the child’s ability to be eligible for financial education aid in the future.
Involve your child in the education expenses
Many students feel their responsibility to contribute towards their college expenses. As a parent, it’s your duty to ask your children to take on a portion of college expenses. A good way to take this step is to start discussing savings and the amount you can afford with your younger generations. Along with your children, you can plan for college savings together. A few things to look out for include:
- Asking your child to attend community college for the first couple of years. The initial low-cost education helps build savings for better education in a reputed university later
- Funding only a part of your kid’s education. You can plan to ask him to contribute as much as 50% of his education by doing some part-time job. There is no harm in bringing your child into the financial arena for his own sake.
- Planning with your child to get that athletic and academic scholarship. If your child shows dedication, he might very well be on the track to getting a good scholarship in college that will reduce more than half of the expenses.
Conclusion
Saving for college is an important economic aspect that shapes your child’s future. Hence, the earlier you start planning, the better. You may look for a good plan or decide to save finances yourself with the help of your children. The strategies provided above will help you make a sound decision.
Do you think that your child’s college savings is on the right track? It might be a good idea to take the help of our guided blogs. Seek out our regular blog updates and get assistance through their wisdom about college savings plans.
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Frequently Asked Questions
1. Is there any one best option to start to save for college?
Beginning as soon as possible is the greatest approach to start saving for college. As soon as 2-3 years old, parents should start saving for their child’s education. Investing in mutual funds can also be a good choice if you’re getting ready for your own education. Compound interest allows your funds to increase dramatically over time if you start saving early.
2. What time should be the ideal one to start saving for college?
When your child is between one and two years old, it is ideal to start saving for college. By the time they are prepared for higher education, the fund might grow more significantly the sooner they start.
3. What are some sensible approaches to saving money?
Establish a Different Savings Account: To prevent combining money intended for emergencies or other needs, open a savings account that is only used for college expenses.4.
Invest in Mutual Funds: If you want to diversify your finances, think about investing in mutual funds, which have the potential to produce larger returns than standard savings accounts.
Plans for Systematic Investments (SIPs): To invest a certain amount on a regular basis and build wealth over time, start a SIP1.
4. How much a month should I save?
Determine the total cost of your intended college education and account for inflation to determine how much you need to save each month. For instance, starting with a monthly SIP of about ₹17,000 and increasing it by 10% annually could help you meet your objective if your goal is to accumulate a corpus of ₹1.25 crore in 15 years at an expected annual return of 12%1.
5. Are there any scholarships for students?
Yes, students in India have access to a wide range of scholarships. Applying to several scholarships will improve your chances of receiving financial aid. Merit-based scholarships are available at many universities and can greatly reduce tuition costs.
6. Is it possible to work and study at the same time?
Working part-time is an excellent method to finance your education. They not only assist with living expenses but also provide important responsibilities and job experience.
7. How about financing for students?
One efficient approach to pay for your college education is through education loans. Lower interest rates (between 9 and 11%) are offered for student loans by the Indian government and a number of banks. Finding appropriate lending choices can be facilitated by using portals such as Vidya Lakshmi2.
8. How can I cut my costs for college?
Purchase Used Textbooks: To save money, choose used textbooks rather than brand-new ones.
Use Public Transit: Using public transit instead of having a car can cut expenses dramatically.
Cook Meals at Home: Over time, cooking meals at home as opposed to dining out might result in significant savings.
You may successfully save for college and make sure that your financial situation doesn’t limit your options for education by putting these techniques into practice.
