When it comes to college education, there is more to pay for than just tuition. Textbooks, living arrangements, groceries, and more. With college education costs being at an all-time high, the thought of saving for your child’s college education and other related expenses might be intimidating, however, there are ways to properly save and prevent potential stress.
- Create A Savings Plan
College education savings plans are called 529 plans. When you use a 529 plan, you are saving money specifically for a higher education for your child, or the designated beneficiary on your account. With this plan, you can make after-tax contributions to an account where your child is deemed the beneficiary. In other words, the money you invest into this account doesn’t get taxed, as long as you use that money for tuition and other college-related expenses that are required by the university your child goes to for a higher education.
- Use The 2k Rule
The 2k rule was created by Fidelity Investments, and this rule requires you to multiply your child’s age by $2,000 in order to meet HALF of the average cost of a four-year university and be confident that you can afford even half of it. This rule assumes you are already following a 529 plan.
- Search For Scholarships
Scholarships are everywhere. There are dozens of scholarship websites where your child can apply and earn free money. Yes, free money that will go towards their tuition and fees at their university. If your child is granted a full scholarship, you can still use the money saved in your 529 plan, too! Remember when we said college is more than just the cost of tuition? Your child will need textbooks, school supplies, and will have room and board fees to use that 529 plan money on.
- Encourage Your Child To Take AP Classes
Taking AP classes in high school is a great way to save money for college. By taking AP classes, your child can gain credits and reduce the cost of their future tuition. There are multiple ways to get college credit while still in high school. For example, taking AP classes or dual-enrollment at a community college are great ways to reduce the amount you will be paying in the future.
- Invest in an Education Savings Account
An Education Savings Account (ESA) is similar to a 529 plan in that the money invested grows tax-free. However, with an Education Savings Account, you can choose between stocks, bonds, mutual funds, etc. There are many more options to choose from than those that come with a 529 plan. Education Savings Accounts can also be used for primary and secondary schools as well.
As you can see, there are multiple options for saving for your child’s college experience. College these days is not cheap, so making sure you are prepared and have saved enough is key to a balanced approach to a higher education for your child.