Creating a college savings mindset
This week it started to set in…there are only a few more weeks left of Summer. Over the next month, if you have children or grandchildren you are most likely in planning mode to start the school year. While you are in the “back to school” mindset, it is a good time to evaluate college savings and consider how to plan for the future.
What is the goal?
Parents or grandparents with multiple children will know that they are all unique and there really isn’t a one size fits all plan. It starts with just building a vision. Things change but have fun with the conversations and start including the kids when they are ready. Here are some questions to think about: How long until each child decides about college. What study interests do they have? What outside activities are they involved with?
Decide what you want to help with
The intention to pay for college expenses is different for everyone. It is important to evaluate how you feel about paying for college and what options are available. Since college options vary so much, it is important to decide what your baseline goal is and work towards that. For parents and grandparents with multiple children, it may be helpful to set a giving amount that you are comfortable with.
Understand the process
It helps to learn how the college application process works. Many schools provide opportunities for students and parents to learn the basics, but I suggest doing your research early. 75% of student applicants are accepted into their first-choice college, but it is important to have back-up plans. Beyond the application process, it is also important to plan ahead for financial aid. The Federal Student Aid website is a great resource to understand how aid is calculated and awarded.
College is expensive. Right now, there is approximately $1.6 trillion in outstanding student debt. Planning ahead requires you to take a realistic look at what you can afford and then take action. The more savings you have, the better off you will be, so start early and try to increase your savings each year. Beyond savings, consider if you will pay for education out of your budget, if you will take loans or if other family members will be contributing. As college gets closer, it is important to involve the student and discuss their responsibilities.
Here is link to a good calculator to help you evaluate college education costs: https://fidelityadvisor529qa.wealthmsi.com/csp.php
The 529 plan
I suggest the 529 plan as the most efficient way to save for college. These accounts allow you to invest money in a diversified portfolio. Your savings grows tax-deferred which means that you will not owe annual taxes on income earned or capital gains in the account. When you withdraw money for qualified education expenses, your withdrawals are tax-free.
The 529 plan has very high contribution limits and allows for contributions from multiple family members. For more info on 529 plans, check out this previous blog post.
Other big moments
Beyond college, you may have other child expenses that are on your mind. Paying for sport clubs, future trips, weddings or helping them out with a home or a business venture. Again, everyone is unique in their family strategy. Now is a good time of year to think about your vision and plan your finances. These goals can be exciting and if discussed in the right way with children they can be motivating. I suggest being creative when it comes to making your plans. Take some college tours to get a feel for them, then use lists or vision boards to keep the goals in front of your family as you work toward them.