subject: A Foolproof College Savings Plan For Your Children [print this page] A Foolproof College Savings Plan For Your Children
Getting a good college education is one of the most important things in a young person's life. Making sure that college education gets paid for is one of the most important responsibilities of a parent's life, yet most of us do an absolutely horrible job saving for our children's college education.
Today I'd like to share a foolproof plan that every parent can follow to make sure there is money set aside when the time comes for your child to go away to college.
It's hard to calculate an exact amount of how much money you'll need because college education costs keep rising, seemingly higher than the rate of inflation. For instance, today Harvard cost about $60,000 a year, but how much will it cost 18 years from now? That's anybody's guess.
Plus, not everybody can go to Harvard or other elite private universities. State colleges cost substantially less money and community colleges don't cost hardly anything at all. So there's quite a range of options you need to be prepared for.
The first thing you should do is open a 529 college savings account with your state, that is, the state in which you live. These are free accounts to open that allow you to invest money that your children can use for college expenses tax-free when the time comes. They're also very easy to open, just fill out a form that you can get online.
These plans are administered by the state and an investment adviser that the state has chosen themselves, usually a mutual fund company. You only have a few investment options but be sure to choose the one the most closely mimics a broad stock market index fund like an S&P 500 index fund because that way you will get to take advantage of the historic 7% to 8% returns that the stock market usually throw off as a whole.
Next, determine how much money you can afford to set aside each month into the 529 college savings account. Set it up to direct deposit that money directly into the account either from your paycheck at your job or through your checking account. The key is to set this up so that it does it automatically so that you can set it and forget about it.
It doesn't matter how much money you set aside each month, five dollars, $20, $50, $100, whatever you can afford. The key is that you continue to make monthly contributions, month after month, automatically.
Finally, every year on your child's birthday commit yourself to adding an additional $100 to the 529 college savings account. Also, especially when your child is very young and doesn't know the difference, ask relatives to contribute money to the account on your child's birthday as well instead of getting them a birthday present.
When your kid is two years old, they don't know what a gift is so why give them one? Instead have people take the money they would've spent on a silly baby gift and put it in a college savings account. You'd be amazed how much money you can accumulate this way before your kid is even five years old!
Besides buying a house, college is the most expensive thing most of us will ever pay for in our lives. With this simple plan, now you can be sure that there will be a nice chunk of money waiting when your kid needs it.
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