When it comes to saving for your child’s education, timing is everything. Research shows that the earlier you start planning and saving for your child’s college education, the more likely you are to also meet that goal. It’s never too early or too late to start… With an average cost of tuition and other school-related expenses continuing to rise, financing a child’s education can be a challenge. However, there are different ways you can save money specifically for their future educational pursuits. There are many different options available when it comes to saving money for your child’s college education; however, some may provide you with a greater return on your investment than others. Here is a checklist of different ways you can help fund your child’s education:
Set Up a 529 Savings Plan
A 529 savings plan is a type of investment account that is typically used to save for a child’s education. These plans are administered by each state, and there may be certain restrictions based on where you live. You can open a 529 savings plan account at any time. One of the best things about this type of savings account is that earnings from the account are generally not taxed, meaning more of your investment goes towards your child’s education. You can use this savings account to invest in either a mutual fund or a stock portfolio. Depending on how you choose to invest, you may be able to take advantage of dollar cost averaging — a strategy that allows you to buy more shares when they are low in price and fewer shares when they are high in price.
Make use of your employer’s education benefit program
Your employer may offer additional financial assistance for you to use towards your child’s education beyond what is offered through a 529 savings plan account. Many employers encourage their employees to pursue additional education through the use of tuition reimbursement programs. Some employers may also offer to contribute towards your child’s education through a matching education benefit program. This is great, but make sure you understand all the rules and regulations related to these programs before you start taking advantage of them.
Estimate how much you will need and set up an emergency fund
There are a variety of different ways you can estimate how much money you will need to save for your child’s education. One of the most popular ways is to use the rule of 9-10-4. This rule states that you will need to save 9% of your annual salary, 10 years prior to when your child will start college, and you should save the money in a 4% investment. However, you should always be open to adjusting your savings goal based on your child’s specific circumstances. You should also set up an emergency fund to cover any additional expenses that may come up as your child progresses through their education. This money can be used to cover expenses such as books, supplies, and transportation.
Choose the best investment option for you
There are a variety of different ways you can choose to invest money in a 529 savings plan account. While you can select from a wide variety of investment options, you should choose the option that best matches your risk level and your time horizon. Some of the most common types of investments you can select from are stocks, bonds, and cash equivalents. A good rule of thumb is that the longer you can keep your investment open, the more risk you can take on. It is generally advised to pick a mix of stocks and bonds. You may also wish to consider investing in a target-date fund, which is typically a fund that automatically adjusts its investments as your child gets closer to college age.
Ensure you have adequate life insurance
No one can predict the future, but it is possible that your child may not be able to complete their education due to an unforeseen accident or illness. If that were to happen, your child would not be able to get a job and earn enough money to pay off any student loans they may have incurred. Having adequate life insurance can help cover your child’s remaining expenses, so they are not burdened with debt. You can collect the life insurance payout and use that money to pay off your child’s remaining expenses. Life insurance can also help protect your child’s future. Having life insurance can offer your child a financial safety net if you are no longer able to provide for them. In many cases, having life insurance is actually cheaper than having a savings account to cover these expenses, since interest rates on savings accounts are often very low.
The earlier you start saving for your child’s education, the more likely you are to meet that goal. There are different ways you can save money specifically for their education. You can set up a 529 savings plan account or take advantage of your employer’s education benefit program. You can also estimate how much you will need and set up an emergency fund. Additionally, you should choose the best investment option for your savings plan. You can also ensure you have adequate life insurance. With these tips, you can better prepare for your child’s education.