Saving Money For College
College debt is one of those things that lingers in the shadows for millions and millions of people. You may have the cloud hanging over you and your teen already, or maybe you are just preparing for your kindergartener’s future. If you’ve been thinking of going back to school yourself, you might also be worried about how to pay off your own college expenses. Fear not! Here are some tips that will make it easier for you to be saving money for college.
Actually Start Saving – The Sooner the Better
Some teenagers start saving for college as soon as they can work. Once they have landed their first job, it is important that they learn to budget. As the most basic financial life skill, budgeting will allow them to learn to save money. If your child doesn’t create a budget for their earnings, they will likely find themselves blowing their hard-earned cash and wondering where all their money went. Begin by creating a list of their bills with them and help them figure out how their income matches, exceeds or doesn’t cover their expenses. If you spend “x” per month, you need to make “y” per month in order to pay off all the basics. That is your conversation.
Speaking of basics, don’t forget to include gas, coffee (which adds up fast!) and food on the list. Remind them to think about what they need vs. what they want. Do they really need to go out to dinner with their friends every night or do they just want to go out to eat with them? Does it always have to be a steak dinner or can they grab a pizza and camp out on someone’s couch occasionally? Even better, encourage them to chip in with their friends and figure out how to make a cheap dinner in your kitchen. Two birds with one stone! We’re saving money AND learning to cook.
Once the basic essentials are covered, whatever money they have left should be going into some sort of savings account. Of course they can splurge from time to time, but the main goal should be to save as much money as possible. The sooner they start, the more money will
Start Your Own Business
Being an entrepreneur is always a good thing. If you can make it work, very few jobs pay better than owning your own business – particularly when you are young and just starting out. Allowing your teenager to start their own business is a great way to help them start saving money for college. Plus, putting their own blood, sweat, and tears into their work is a great confidence booster. Lawn care, snow removal in the winter, raking leaves, dog walking, and babysitting are a few of the most common businesses that high-schoolers can build for themselves. There is also the possibility of oil changes (if they have that skill) or putting handmade work (sewn or tied blankets, crocheted blankets, hats or scarves, and painted art, to name a few) into craft bazaars. You can help them advertise their expertise through word of mouth, the newspaper or even Etsy, as well as on social media.
Work Several Jobs the Summers Before College
Once it’s summer, your child no longer needs to wait until after school hours to go to work. They can now work first thing in the morning, later in the day, or both depending on family commitments. Have them pick 2-3 days a week to spend time with family and their peers, and the remainder of their time can be spent building up a good work ethic. Local grocery store or food service jobs are generally easy to come across, with flexible hours. Many stores look for extra summertime help, so they should be able to find something, at least for those few months. If it is too complicated to work at more than one store, have them offer to do chores for friends or family in the neighborhood, look into summer lawn care, pet care or anything else that they may be able to do on a more flexible schedule.
Start a 529 Savings Plan
There are several different options to choose from when you are ready to start putting away money for college, but the most popular option is a 529 Savings Plan. This is a plan that allows you to set aside funds specifically for educated related expenses, such as tuition or textbooks. Anyone can put money into this account. So, if your kids have enough toys and gadgets, ask grandma and grandpa if they would like to contribute to your child’s 529 plan for their birthday. Instead of buying a larger gift, ask them to purchase something smaller for your child to open (a graphic novel, a Pop Figure – something that interests your child) and contribute the rest of what they would have spent to the fund. There are a couple of different 529 plans available, and there are penalties should you choose to withdraw money from the account for non-school related expenses, so be sure to ask your bank or accountant for details and/or advice on which to choose.
Start an Education IRA
Educational IRAs are another route that you can take to start saving money for college. These are now known as Coverdell Education Savings Accounts. It is generally best to start these when your children are younger, because once the beneficiary reaches the age of 18, you will no longer be able to contribute to this account. It also has an annual contribution limit of $2,000, so the earlier you begin contributing, the more money you can accumulate. One perk to this account though, is that you will have more control over the investments compared to the 529 Savings Plan. The Coverdell Education Savings Account is something you’ll want to talk over with your financial advisor in order to get started. If you don’t have a personal advisor, most banks have personnel available for this exact purpose.
Save Your Money in a Bank Account You Won’t Touch
This last one may be a little easier said than done. Everyone should have an emergency fund or a rainy-day fun. In addition to either of those, it would be wise to set up an account that you won’t find yourself digging into. This is why we call it a “no touch account.” It is simply a savings account that you deposit as much – or as little – into daily, weekly, monthly, or however often you are able. The catch is that it is strictly meant for depositing. You must make the decision that there is NO withdrawing from it, regardless of the reason. This is the
tricky part. That said, with a little willpower, you will find yourself sitting on a hefty heap of change in no time.
One tip for keeping this account is to have a certain amount of money automatically transfer from one account to another each month. For example, on the 5th of every month, you can set it up so that $100 transfers from your checking account (where your paychecks get deposited) into the “no touch” account. You never have to think about the transaction, it just happens. Six months later, you have $600 already in the account. Choose an amount that works for you, but the less involvement you have with this account the better.
Saving money for college is something that we all think about, but hopefully these tips will get you motivated to take action. Do you have other suggestions? I’d love to hear them! And if you have a child already enrolled, make sure they read about how to save money while they are in college!