6 Tips On How To Save Money For College
Saving money for college is an important priority for many parents. However, there is a lot of conflicting information available on the topic and many parents do not know what the best course of action is to get started with an effective college savings plan for their child. The bottom line is that the most important thing to do is to start saving now. The sooner that parents start saving for their child’s college education, the better off they will be when the time comes to send their child off to college. Here are some tips and strategies that can help you start saving for your child’s education now.
Consider A 529 Savings Plan
529 Savings Plans are state or educational institution-operated savings plans that allow parents to save for their child’s college education through a variety of investment vehicles. They are run similar to 401(k) retirement plans and are available in almost every state (however, some plans are no longer accepting new participants).
The major benefit to a 529 plan is that the investment earnings in the account are not taxed as long as they are used to pay for qualified educational expenses. Another benefit is that 529 Savings Plans do not have any restrictions on age and they have no income limitations. Additionally, there are no restrictions on the amount of money that parents can invest in the plan. Keep in mind that these plans do charge management fees, which can directly affect the overall return rate. Also, like 401(k) plans, 529 plans can lose money if the investments held perform poorly. (To learn more about 529 plans, see Everything You Need To Know About 529 College Savings Accounts.)
Consider A Coverdell Education Savings Account
The Coverdell Education Savings Account is another type of savings account that parents can use to save for their child’s college education. Like a 529 plan, money placed into the account is invested across different investment vehicles. All money that is withdrawn to cover qualified educational expenses is not subject to taxes. Unlike the 529 Savings Plan, the Coverdell Account allows money to be used for elementary and secondary schooling as well. However, there are yearly restrictions on the amount of money that parents can place in the account and there are income restrictions. Additionally, all money placed in the Coverdell Education Savings Account must be used for educational expenses before the beneficiary reaches 30 years of age. Alternately, the funds can be transferred to another family member who meets the age requirements. Parents may choose to transfer funds in order to avoid taxes and penalties. (For more information on Coverdell Accounts, see Saving For College With A Coverdell Education Savings Account.)
Don’t Put Too Much Money In Your Child’s Name
Putting too much money in your child’s name can backfire when it comes time to seek out additional college funding sources. If you put all of your college savings in an account that is in your child’s name, it could decrease the amount of financial aid that is available to him or her. Therefore, you might want to consider putting the money in an account under your name.
Look Into Automatic Monthly Withdrawals
Regardless of the college savings plan that you choose, one of the best ways to ensure you continue to grow the fund is to opt for automatic monthly withdrawals from your bank account. This method of savings is easy and carefree, and eliminates missed contributions if you forget to fund the account one month.
Cut Extra Spending
Saving for college can be a daunting task, especially for parents of multiple children. Many parents struggle with finding the extra money to save. But by employing basic savings strategies and cutting back on extra expenses, even the most cash-strapped parents can start saving for college. Many individuals don’t realize that the little daily expenses add up to a decent chunk of change at the end of the month. Simple ways to cut extra spending include:
- Prepare more meals at home and eat out less.
- Skip the daily $4 lattes at expensive coffee shops and brew coffee at home instead.
- Instead of taking the family out to see a movie, have a movie night at home. Rent a movie or order one online or through your cable provider.
- When you do take a trip to the movies, opt for the matinee showing, which can be as much as half off the normal price.
- Cancel subscriptions that you don’t use, such as gym memberships and membership websites.
- Watch items that you want to purchase and wait to see if they go on sale. Why pay full price for an item that you can get later on for a fraction of the cost?
- Carry cash instead of debit cards. Allocate a certain amount of money for extras each month and when the cash runs out, it’s gone.
Make Extra Money On The Side
Making some extra money that can be put away for college is an effective way for parents to start saving. There are dozens of ways for parents to make some extra money on the side. From getting a part-time job to selling unwanted items, parents can supplement their income in a variety of ways. Some examples include:
- Turn your hobbies, interests or skills into extra cash. Consider providing a service such as tutoring, singing lessons, teaching a second language or becoming a yoga instructor. If you have a talent that others will pay to learn, you can make your own hours and start sharing your skills with others.
- Offer your domestic skills for a fee. Housecleaning, pet-sitting, lawn cutting, babysitting and providing companion care to the elderly can help bring in extra income.
- Sell unwanted stuff on e-bay or Craig’s List. Clean out the garage and empty out the attic. Get rid of unused items that are just taking up space.
- Have a yard sale to get rid of any items that do not sell on e-bay.
- Bring your gently used clothing, children’s toys, books and household items to a consignment shop. They will sell your goods at a discount rate and you will earn a portion of the sale.
Keep these saving tips in mind when you sit down to plan your college savings strategy. If you are unsure about a particular type of investment, consider consulting a financial adviser for advice.