Saving Money for Your Child's Education

Finding money to put away for your child’s education can be a difficult path.  You know you want to start early because of the beneficial effects of compound interest.  However, all the costs of raising children, owning a house, owning a car and covering the bills leaves little for living let alone saving.

So you will have to be a little bit more diligent with your spending and saving in order to put money away because, as mentioned at the start, the benefits of starting earlier can be very beneficial.  Though we are unsure of future tuition costs, let’s use some numbers to clarify how important it is to start saving early.  Let’s assume a four year degree will cost $60,000 in total.  So you have 18 years to save $60,000.

With no interest earned on your savings, that means you would have to put away $3,333 a year or $280 every month.  But if you could invest that somewhere where it earns at least 3% per year, then in 18 years you’ll have $78,000.  That extra $18,000 could be useful if baby number two comes around.

Luckily, the government has introduced options to save money for your children which will be tax free.  We all know the government wants their piece of the pie, so when you have a chance to keep a larger piece, then do it for your children, keep a larger piece.  To do this, you have two options, a 529 plan or a Coverdell Education Savings Account.  Both plans allow for tax free savings, but a Coverdell ESA has a limit of $2,000 per year whereas the 529 plan has no limit.  On the flip side, the Coverdell ESA allows you to invest in almost any investment option: stocks, bonds and mutual funds, whereas a 529 program is only allowed among a number of state run allocation programs.

Of course once your kids aren’t kids anymore, they can pitch in to help save money for their education.  Not getting a free ride will help them appreciate the hours you put into saving away for their education.  Even an extra $50 a month will be almost 1/5 of the $280 that you need to put away every month for their university education.  That’s not that much per month, yet it will add up over time, adding up to $3,000 in 5 years of work of your now teenage child.

Of course, you don’t want your kids working all the time, as they need to keep with their studies while in high school.  Not only do they need to do well to get into college, if they excel at their studies that could be the biggest saving’s plan of them all.  A scholarship would pay for most if not all of your child’s education.

So if you plan your child’s education from the day that they arrive in this world, it gives you plenty of time to come up with the money to save for their education.  By utilizing government tax benefits, a little bit of extra hard work, both academically and at a side job, then putting your child through college is an achievable plan.


by Peter S.

By InvestorGuide Staff

Copyrighted 2016. Content published with author's permission.

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