If you’re a parent, chances are you’re juggling a multitude of financial goals at the same time. You’re probably making decisions about whether to prioritize getting a new car versus taking the family on vacation, or choosing between paying off your mortgage early versus building up your retirement savings. Sometimes, financial decision-making seems endless! Still, it’s important to keep your eye on the ball and if you want to help your kids pay for college someday, you’ll want to begin using savvy college savings strategies as soon as possible. Read on to learn about five strategies that can help you prepare for future college expenses.
#1. Start Saving as Early as You Can
The key to achieving any significant financial goal is to begin saving as early as possible. It may be tempting to put off thinking about college savings strategies when your children are young, but the more time you give yourself to save, the less pressure you’ll feel as you tackle this goal. Thanks to factors like compound interest, time will be your greatest asset when it comes to growing your savings. Whether you open a dedicated college savings account, which we’ll discuss below, or use other investment vehicles, initiating savings when your child is young will give you the head start you need.
#2. Create a Realistic Budget
As with any big purchase or expense you’re saving for, a smart first step is to create a realistic budget you can stick to. Start by taking stock of your finances – what money is coming in and where each dollar is going. As you’re looking through your spending, keep an eye out for anywhere you can cut back on unnecessary expenses. Maybe you could renegotiate your insurance rates, for example, or find a more affordable internet and phone plan, then begin putting those savings into a college fund. Whatever it may be, don’t forget that even small amounts saved consistently can add up significantly over time. Incremental progress is still progress, and that’s certainly the case when it comes to college savings strategies.
#3. Explore Tax-Advantaged Accounts
If you’re especially interested in taking advantage of tax-savvy college savings strategies, tax-advantaged savings accounts can be an excellent opportunity to save for the future while benefiting in the near term, too. Two such accounts that are quite popular are 529 plans and the Coverdell Education Savings Account (ESA). What makes a 529 plan so advantageous is that it allows you to contribute after-tax dollars that then grow tax-free and can be withdrawn tax-free – so long as you’re using the money for qualified educational purposes. Similarly, a Coverdell ESA allows for tax-free growth and withdrawals for qualified education expenses all the way from kindergarten through college.
To determine which account works best for you, do some research on these options, taking into consideration the tax benefits, investment options, underlying expenses, and any contribution limits. A financial advisor can offer guidance as you make your decision.
#4. Encourage Your Family to Participate
You know that saying “It takes a village?” Well, that’s never truer than when it comes to raising and supporting our children. Don’t hesitate to encourage extended family members to contribute to your children’s educational future. Instead of buying traditional gifts for birthdays, holidays, and other special occasions – many of which just end up taking up space in our homes – make sure your family and close friends know it’s an option to contribute to your child’s college fund. You may even want to think about setting up a savings account that’s specifically for these contributions and let your relatives know. Not only will this approach help alleviate some of the financial burdens on you as a parent, but it also fosters a sense of shared responsibility among family members. Even if they’re not able to contribute a lot, having your loved ones contribute whatever they can afford over time can result in these contributions growing into a meaningful collective gift.
#5. Seek Out Scholarships and Grants
Even if you feel confident about the college savings strategies you’re utilizing, it never hurts to have a backup plan. Scholarships and grants, while selective, assist many students in paying necessary college expenses. While nobody wants to put unnecessary pressure on their children, it’s okay to encourage your child to work hard in areas where they naturally excel or in pursuits that they are passionate about. Some scholarships and grants are based on academics, of course, but many also relate to extracurriculars, special talents, or work in the community. Research and applications do take time, but scholarships and grants can significantly reduce the financial burden of college.
Utilize These College Savings Strategies and Ease Future Financial Stress
Though it may seem like a daunting task, you can make significant progress in saving for your child’s college education with proper planning and disciplined college savings strategies. It’s important to remember, every dollar you save today will bring you one step closer to providing your child with a solid financial foundation for their educational pursuits. By incorporating these college savings strategies into your financial plans and remaining committed to your savings goals, you can help make your child’s dreams of higher education a reality without undue financial stress.
At Flourish Wealth Management, we understand the desire to help your children achieve their dreams. Our advisors prioritize building lasting relationships with our clients and can provide you with ongoing support as your financial planning journey – and your child’s college journey – unfolds. Take the first step towards securing your child’s future by reaching out to us today. Together, we can help your savings flourish and make college dreams a reality.