Saving for College: How to Do It and Be Ready
Saving for college can seem like a daunting task. It certainly comes with some sacrifice and requires discipline with your money to do it effectively. However, it’s an investment worth making – either in your child or yourself. Take a look at some of this info on earning potential for people who go to college vs. those who don’t:
|Educational Attainment||Average Weekly Salary 2017*||Average Weekly Salary 2018*||Average Weekly Salary 2019 (3rd quarter)*|
|Some college, no degree||$774||$802||$874|
|High school diploma, no college||$712||$730||$749|
|No high school diploma||$520||$553||$606|
Source: *U.S. Bureau of Labor Statistics
People who hold at least a bachelor’s degree make over 1.5x someone who just graduated high school and got whatever job they could. Someone with a master’s degree makes double. That is a big difference!
Granted, all the advanced degrees do end up costing more money when it comes to saving for college. However, you should be able to pay those student loans off pretty quickly with the $74,000 starting salary. Especially if you go into the process with savings built up.
I’m writing this under the assumption that the person who graduates is relatively young and just needs to focus on supporting themselves. That means only owning a starter car (or no car) and a basic apartment (or live with parents!).
Here are a few ways to start saving for college.
1. Open A 529 Plan To Start Saving For College
From a strategic perspective, doing this is the best way to go. Yes, I know, I should have put this at the end of the article like everybody else, but what can I say? I like getting to the point. The official name of a 529 plan in legalise is a “qualified tuition plan.”
In a nutshell, it allows tax-advantaged savings that can be put toward higher education expenses. Using tools like this one, saving for college has never been easier. According to the U.S. Securities and Exchange Commission, there are 2 kinds of of 529 plans available.
There are pre-paid tuition plans and education savings plans, with each state supporting at least one. We’ll cover 529’s more extensively in a different article, but the big thing is that you start one once the decision has been made that you or your child will be going to college at some point down the road.
2. Get Off to A Fast Start
The best time to start saving for college is early. The earlier you start putting money away for a college education, the longer it can grow. Plus, you have more options in terms of riskier 529 investments when there’s time to recoup potential loses. The closer you are to college happening, the more risk-averse you need to be with investments.
You can open up a 529 plan to start saving for college as soon as your child is born. If the money is there – put it to good use instead of spending it on short-term things like another flat screen.
3. See If Your Employer Will Help Saving For College
Some employers out there offer 529 plan matching. Take advantage of those! It’s always easier to have the money go straight out of your paycheck into the savings account and it’s even better when there’s a match. Arkansas, Colorado, Illinois, Nebraska, Nevada, Wisconsin & Utah all offer tax incentives for employer 529 matching, according to Saving For College.
4. Create A Budget
Planning ahead for college requires planning all your spending accordingly. That means drawing up a budget that takes into account your monthly, even weekly, college savings contributions. This way, you won’t be tempted to dip into that money later on in the month.
If you figure out how much you need for covering other expenses like a mortgage or car repairs, there won’t be any surprises taking a chunk out of your change.
Tying It All Together
Saving for college is a major investment in your or your child’s future. The faster you get started, the better. All that being said, if you choose to go with the 529 route, you could also end up with nothing if all the stocks tank in the end. That historically hasn’t been the case long-term, however. Just make sure you stick with the more conservative portfolio toward the time you or your student plans to attend school.
*This is also for educational purposes only, be sure to consult a licensed financial or tax adviser before making any decisions discussed here.