Budgeting for college – It’s never too early

Congratulations, you are now proud parents of a bouncing baby. As you hold her, swelling with pride, 18 years from now seems too remote to worry about. ‘I have plenty of time to save for her education, you think confidently. So you keep putting it off. Before you know it, your bundle of joy is all grown and set to join college. ‘Where did time fly to?’ You wonder in dismay, as you try to figure out where the money will come from.

With the ever rising cost of education in mind, it is time to think about the million dollar question; when should you start saving for your child’s education and specifically, college fees? The answer is, the earlier the better. The beauty of starting early is that you will have one magical component on your side: compound interest.

When you put money in an interest-bearing savings account, you earn interest at a certain percentage depending on how much money you have in the account and what the rate of return is on the interest. This explains how a savings account with only a small amount of money can grow exponentially over the years.

Here are the five things you need to remember:

Start now

Never underestimate the value of starting your savings program early. Any amount that you can put aside now, no matter how small, reaps the benefit of time to earn interest and grow. You can start small and gradually increase the savings amount as your income grows. To help you regularly put money aside each month, automatic savings plans are a good option.

Save for retirement

Retirement savings deserve a top priority in your family budget. Many financial experts recommend that you approach saving for college like saving for any other large purchase. Make sure you fund your retirement strategy first, and then address college savings goals. To bridge any gaps in your child’s college fund, there are many additional sources to finance a college education; including scholarships and loans.

Clear your debts

Credit card interest rates are high, and interest payments add up quickly. By paying off your credit card balances now, you eliminate this interest payment

Invest in the stock market

Historically, stock returns have outpaced both bond returns and traditional savings accounts interest over a long-term period. These higher returns do come with a price as market instability makes stocks riskier short-term investments. Nonetheless, these risks are likely to smoothen out over the years before your child reaches college age.

Consider your child’s age

Low risk investments such as the traditional savings accounts have a low return. Investing in such when your child is young can jeopardize your overall savings plan. This is because the low returns of these safer investments generally will not generate the growth that you need for your child’s college education account. For children younger than 14, shares and mutual funds provide the greatest investment return over time. However, when your child is already 14, consider switching to the lower risk investments. This protects you from any negative stock market swings that can happen just about when the tuition money is required.

So if money is tight now and the thought of eventually paying for your child’s college education seems daunting, do not despair. Start putting aside a little money each month, then add more as your finances allow. Remember that you have time on your side right now. Take advantage of it and you will have yourself to thank later.

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