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Today I have a special guest post by David from MillenialPersonalFinance.com. Most of you, along with David and myself, are parents of young children. Saving for kids college may not be the most fun subject to talk about, but it’s a very important discussion! Remember that it’s never too early, or too late, to start thinking about saving for kids college. Find out why and how David is saving for his daughters education in this informative post!
Why and How I Am Saving for My Daughter’s Education
The thought of my daughter heading off to college is scary and I am still uneasy about it. Fortunately, I still have plenty of time. I try to remind myself that from time to time, but it still doesn’t help sometimes. After all, she is my only child, and I don’t know how life will feel with my child so far away from me.
Either way, I faced the truth and I knew I needed to figure something out for her college education. She shouldn’t bear the weight of student loans on her own. I didn’t want to be in a position to put my retirement in jeopardy. With all that out there, I still knew that the answer was simple.
Below, we will take a look at why and how I am saving for my daughter’s education. I hope that the information provides you with some helpful insight.
Isn’t It Obvious?
When I think about WHY I am saving for my daughter’s education, it doesn’t come as a surprise to me. In fact, I think it is quite obvious, but maybe it is only obvious to me. I am saving for her college education because I do not want her to start her life with a bunch of debt. Student loans are intense, and they can setup a child to enter the real world already in a bad financial position.
Secondly, a higher education will lead to more opportunities in the world. My daughter can be a doctor, a lawyer, a business woman, anything she wants to be and I fully support her. While I know, she can be anything she wants, she will need a degree for many of those things and I want to make it possible for her. She should not be limited at all!
Budgeting for My Daughter’s Education
This was probably the hardest thing I had to do and that was to budget for my daughter’s education. While I make a solid and healthy income, I was not necessarily in a position to pack away thousands of dollars at a time to ensure she would have the most money when she does head off to college.
I sat down and took a look at my budget and then I worked out a plan that would allow me to safely add money to her college account without actually having to give up a bunch of the luxuries we enjoy.
The first thing I did was eliminate a bunch of debt that I had. I’ll just use an arbitrary example to illustrate my point. I had two credit cards with small balances and one credit card with a decent balance, but a high interest rate. The first two cards were a $150 minimum payment per month combined and the third was a $200 minimum payment per month. I went ahead and worked to pay off these three cards and now I can safely put $350 into my daughter’s college account each month without missing the money.
A 529 Plan and What I Decided
While putting my daughter’s college money into a regular bank account was what I was doing, it was not the best option for me. I chose to put her money into a 529 plan. If you have never heard of a 529 plan, it is a tax-free plan that allows you to save for college without the worry of taxes being taken out. You can add money to the plan whenever you want and it can be withdrawn for your child’s tuition when the time comes.
I like the idea of this plan the most because my daughter can decide from any of the qualified colleges, whether or not it is in our home state. There are many popular choices on the list, so she will not be limited.
Enrollment into our state’s 529 plan was easy and I find that I contribute money as I can and the account continues to grow. There are some rules that must be followed, but they are not too stringent. For instance, the money must be used for college to receive the tax benefits, etc.
Prepaid Tuition and My Thoughts
Prior to signing up for the 529 plan, I thought about a prepaid tuition plan, but I actually decided to split up the payments and I have both for my daughter. The prepaid tuition plan is perfect for tuition only. I can use the 529 plan to pay for her other college expenses, but the prepaid plan allows me to receive a discount on her tuition, so naturally it makes sense to do this.
For example, the cost to attend one of the universities in our state is $10,000 per year. I chose to save half of that, which is $5,000 for the year. That is 50% of the tuition. Now, if the tuition jumps up to $20,000 per year, I will still have paid 50% of the tuition and her account would be equal to $10,000. Prepaid plans allow you to pay for your child’s education at today’s rate and you never have to pay more if the tuition does go up.
Start Saving for Your Child’s Education Early
No matter what plan you choose for your child, you should start saving early on. Education costs are expensive, but they are helpful because they will allow your child to advance in life. I am glad that I started saving for my child’s education and I will continue to do so. I want her to have the best life and best chance in life, so I will do what I can to ensure that does happen.
David is the Dad/Hustler/Brains behind MillennialPersonalFinance.com. David is working to beat his student loan debt, build wealth, and save for his daughter’s education. He believes that saving doesn’t need to be hard. You just need to get started!
A word from Amy
In the personal finance world, it seems like parents paying for kids college expenses can be controversial. Some parents pay for school along with everything else, and some parents don’t plan to contribute at all. I don’t think that there is a right or wrong answer. Either way, it is something to think about before your child gets close to 18. I believe that college students should be expected to work and help with their expenses. However, as parents we do want to help our children in any way that we can.
My personal goal is to start saving in a 529 once my own student loans are paid off. That means I will start saving sometime later this year. If you have multiple children, the funds in a 529 can be transferred to a sibling if the child decides not to go to school, or receives scholarships where the money from the 529 is not needed.
What are you doing to save for kids college and education expenses? I’d love to hear any helpful tips and tricks in the comments below.