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4 Simple Steps to Big College Savings
by Marcos Cordero
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Saving for college can be overwhelming. You may not even be sure where to start on this daunting task. But with a little guidance, it can be manageable and even quite easy to incorporate into everyday living.
There are many ways that you can make a huge financial difference when it comes time to pay for your child's college education. And, considering that college costs are rising rapidly at 8% annually (compared to only 3% inflation), savings will be crucial to avoid massive student loan debt, which now exceeds credit card debt.
Here are four steps that are proven to be effective, yet simple, to help you create a college savings plan for your family.
Start Saving Early
It is easy to overlook how much savings matter in the big picture, but with college savings, this is especially true. You can't start saving for college too early. In fact, you can even start saving before birth (giving to a college savings plan is a great baby shower gift).
To exemplify what a considerable difference saving early makes, consider this. If you start a college savings plan at birth and contribute $100 per month, you'll have almost $35,323 by the time baby is ready for college! But babies can take all of your time and energy. So let's say you start saving when your child is five years old. That $100 per month now grows only to $21,015. In either instance, the accumulated savings will make a big difference when your child is graduating high school.
Calculate Your Budget Goals
Of course, we would all love to contribute the maximum amount of our income to college savings every month, but this is unrealistic. Instead, we need to look at our income and expected college costs to make feasible deposits every month, as it is best to have a pay schedule like any other bill to accumulate savings. So, you need to budget your costs, so you can easily assess the percentage of your income to save monthly in order to reach the amount you need to send your child to a public or private college.
Use a 529 to Accrue Interest and Accumulate Savings
Using a 529 is perhaps one of the most advantageous tools available to make the most of the money you are saving. With a 529, the money you save will be tax-free and earn interest over the years, which will be extremely significant when you save from the time a child is born.
So, if you save $200 a month at 6%, you will accumulate $70,646 by the time your child goes to college. When compared, borrowing a student loan of $70,646 at 6% interest and repaying it over a 17-year term will cost the borrower $553.23 per month. The savings speak for themselves!
Invite Friends and Family to Contribute
Many people overlook friends and family when considering college savings. But the truth is, your social network can be a powerful tool to increase savings. Sallie Mae's research shows that family and friends contribute 18% of college expenses. Tools that help aggregate college savings like GradSave can make a huge difference with little effort.
So, the moral of the college savings story is that there are various methods you can use to easily save for your child's college education. It is simply a matter of being aware of the tools available and putting them to work for you.
Debt from my past is preventing me from saving for my future! Tell us: Yes, debt is hindering my ability to save! or No, debt is not a problem but I am trying to get ahead financially!
Marcos Cordero is CEO and Co-Founder of GradSave. The GradSave platform is extremely user-friendly and allows you to simply let your friends and family know via Facebook and email you are saving for your child's college education and that you would like them to consider giving to the college fund instead of toys or clothes for birthdays and holidays. People love the idea of giving this meaningful gift, which they know will benefit the child and go directly to a 529 savings plan.
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