Saving for college is on the minds of many people in the current economy. Household budgets are tight and at the end of the month, many are wondering how they will be able to afford college for one or more children. Smart budgeters will begin to prepare well in advance for that inevitable day when college tuition and housing costs arrive.
Ways Afford College
The savings account is the traditional method of putting away money for college costs on a regular basis. Scheduling automatic deposit of paychecks allows you to allot a certain amount to go into a college savings account automatically bi-weekly or monthly. This method is the easiest college investment plan for those with busy schedules.
Parents can also take advantage of 529 accounts to help save for college. These are college investment plans offered by states and institutions to provide an easier way to plan for future college costs. The 529 accounts may work like a 401K retirement plan that you contribute to on a regular schedule. Some 529 accounts allow you to prepay college costs at the present rate even though the child will use them in the future when college costs are likely to be higher. The account can grow on a tax-deferred basis and may also be subject to state tax benefits. These accounts have low costs, which allow the maximum growth for your money. They can also be transferred to another 529 account in another state if necessary.
Parents can also buy stocks on a regular basis and hold them until the child reaches college age. This method allows the stocks to increase in value, which is generally more than the interest rate of a standard savings account. In addition, you can often use 529 education account advantages for investment accounts earmarked for educational expenses. As college age approaches, investors can then switch to bonds for greater safety and less volatility.
Mutual funds are often considered safer for investors saving for college than single stocks because the investment is spread out over many different stocks. This prevents losses when a particular sector of stocks experiences a downward trend. Investors can also mix both stocks and bonds in a single fund for greater safety. Mutual funds can be a convenient college investment plan for many people because they are handled by a fund manager who makes adjustments to the fund as needed. This frees investors from having to monitor stock trends on a daily basis.
Getting Help to Save For College
Setting up a college investment plan before your child needs it allows you to encourage the child to put aside money from gifts and part-time jobs for educational costs. You can also put monetary gifts given for special occasions into the fund to increase in value for the child’s education.
Even if you do not manage to save all you need for college tuition and living expenses, you will have made a substantial start and can get the rest from college loans, which are generally loaned at a low rate and can be repaid on a flexible schedule after graduation.
Advance planning can help parents to make a good inroad into saving for college for their children. It also reduces the burden of college loans and helps to teach children to save a portion of their earnings for future goals.