When you learn that most college students are spending at least $10,000 per year attending post-secondary education, and even up to $40,000 or more, you may quickly realize that you need to put a financial plan in place for your own child. It’s never too early to start saving for college, especially when you want your child to have as few financial burdens as possible when that enrollment date finally arrives. But where to start… Here are some helpful tips for kickstarting your child’s college savings account journey:
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Sort Your Retirement First
Before you look into a registered education plan or investment options to squirrel away funds for your child’s education, it’s important to secure your own retirement first. Your child can always take out a student loan, gain a scholarship, or apply for grants, but you can’t borrow money for your retirement.
Build a strong foundation for your future by paying off high-interest debt, such as credit cards, and establishing an emergency fund. It should cover at least three to six months’ worth of living expenses. Then, you can see how much is left over in your monthly budget to start making savings contributions for your child.
Research College Savings Plans
Whether you have a newborn or a middle schooler, you can start researching college savings plans anytime. Plenty of options offer advantages that can help you save as much as possible.
For example, the USA has a 529 College Savings Plan that you can use to cover tuition, fees, books, housing, and other education costs. Contributions within a 529 College Savings Plan are tax-free, as are qualified withdrawals.
In Canada, you can open a Registered Education Savings Plan (RESP). This tax-advantaged savings account promotes tax-free savings, and the federal government matches 20% of your annual contributions on the first $2,500 per year, up to $500 annually. While you can open any type of savings account for your child, those angled toward education tend to have fewer fees and more savings opportunities.
Automate Your Contributions
While saving money is voluntary, it’s easy to get into the habit of transferring any leftover money to your savings account at the end of your pay cycle. It’s equally easy to forget. To ensure you contribute regularly, treat the savings account like another bill. Set up an automatic payment so it keeps growing every week. You can still deposit leftover money, but the account no longer relies on it to grow.
Make it a Family Activity
It doesn’t have to be just your immediate family contributing to your child’s educational fund. Aunts, uncles, grandparents, and other relatives can also get involved. For example, if your child’s grandparents are eager to spoil them with extra birthday gifts when they already do so much, ask them to put that money toward their educational fund instead. They can feel as though they’re contributing, and your house doesn’t end up crowded with more toys.
It’s never too early to start planning for your child’s educational future. Whether they plan to pursue post-secondary education or not, you can make sure they have the option without financial stress. Build your financial foundation, open an education savings account, and start this new college savings journey as soon as possible.
