How To Plan For Your Child’s Future College Education

When it comes to planning your child’s college education, there’s no such thing as “too early.” It’s not just about squirreling away a few bucks here and there. It’s about smart, intentional planning that sets your child up for success — without leaving you eating ramen for the next 20 years.

Opening a college savings plan is the first step when planning for your child’s education future. And no, a ceramic piggy bank doesn’t count. The earlier you start, the more you can take advantage of the compound interest. It’s like having a financial fairy godmother working behind the scenes.

Consider these savings options:

• 529 plans: These are the Beyoncé of college savings plans — popular for a reason. They offer tax advantages. Your savings are exempt from taxation so long as they’re used for qualified education expenses. Plus, you can start one even if your little one is still figuring out how to eat solids without spilling.
• UGMA/UTMA accounts: These custodial accounts let you save and invest in your child’s name. Be aware, though — once your child hits adulthood, they control the funds. This could mean responsibly spent college expenses or an all-expenses-paid trip to Coachella with the gang.
• Regular savings accounts: High-yield savings accounts are a solid, low-risk option. They’re straightforward and keep your money accessible for unexpected expenses.
• Roth IRAs: Surprise! You can use these for college, too. While primarily retirement accounts, you can withdraw contributions (not earnings) penalty-free for education expenses.

College fees are rising faster than a toddler during a growth spurt. The average cost of tuition and fees for the 2023-2024 school year was $11,260 for in-state public colleges and a whopping $41,540 for private colleges.

There’s no need to panic, though. You don’t necessarily need to cover 100% of your child’s education costs. Many financial experts recommend saving about one-third of the expected college costs. The rest can come from current income, financial aid and student contributions. Remember, tuition is just the start. There’s room and board, textbooks, late-night pizza runs and random “Can you loan me $200?”

To set a realistic target, use online calculators that factor in inflation and potential investment returns. Divide the estimated total cost by the number of months you have until your child starts college. Voilà! You now have a monthly savings goal.

This is a golden opportunity to teach your child financial responsibility. There are thousands of degree-granting colleges and universities nationwide to choose from, so have an open conversation about higher education costs and expectations. When making college applications, they will do so with an understanding of the monetary implications of attending college to make well-informed choices.

Guide your kids to develop a money mindset rooted in abundance rather than scarcity. Let them see you plan, save, invest and give. It teaches them that this mindset isn’t just about saving or earning money — it’s about how you perceive wealth, opportunity and potential.

Encourage them to set aside a share of their allowance or birthday money for their college fund. Support them in undertaking part-time work or entrepreneurial pursuits as they get older — babysitting, mowing lawns or working in local farms are viable options. Not only does this take a bit of the load off you, but it also helps them appreciate the value of their education.

In addition to saving, investing can be a powerful way to grow your child’s college fund. Stocks and bonds offer higher profits than traditional savings accounts, though they come with considerations. If you’re comfortable with some level of risk, investing a portion of your college savings in the stock market could significantly increase your returns when your kid graduates high school.

If your kid is still a toddler, consider starting a side hustle to diversify your sources of income. Find something you’re good at and find out if you can make money off it. Whether you decide to drop-ship homemade candles, sell stock photos or begin a paid online vlog, ensure your “business” is profitable.

When choosing investments, it’s essential to consider your risk tolerance as well. The closer your child gets to college age, the less risky your investments should be. So, gradually shift toward safer options like bonds or cash equivalents as the time for tuition payments approaches.

Planning for your child’s college education doesn’t have to feel like climbing Mount Everest in stilettos. With some smart saving strategies, the right mindset and a bit of investment magic, you’ll be setting your child up for success without losing your financial footing.

So start now, stick to the plan and give yourself a high-five. You’re officially winning at this college planning game.