Finances tend to be a common source of stress for many adults throughout the year. Regardless of age, demographic or financial situation, most individuals worry about their finances in some capacity.
Affording a child’s education is one of the more common financial concerns, especially with the rising cost of college tuition.
Parents often struggle with balancing the need to ensure their child receives an education with concerns over amassing a significant amount of debt or impeding their own long-term goals.
Additionally, the myriad costs associated with a college education – from tuition and room and board to meal plans and textbooks – makes it difficult to put an exact dollar amount on how much to save in the college account.
Here are a few strategies that can help you stay ahead of the curve:
Saving early is one of the key components of affording your child’s college education. The more time you have to save, the longer your money has to grow.
For example, if you were to open an account and start small contributions of $50 per month before your child is born, it could be two decades before you even need to touch those funds.
Ensuring you are consistent with deposits is also important. Consider automating those contributions from either your general savings account or paycheck so you don’t have to physically transfer money each month.
Delaying the process of saving for college can add complication and stress down the road. An insufficiently stocked college fund may create a difficult situation where you must choose between pulling money from other important areas – such as a 401(k) – to cover the expense or limiting college options based on the total cost of tuition.
While there are certainly factors outside of our control that can present obstacles, saving early and often is a great way to make affording college less overwhelming.
Consider a 529 plan
Many people are not aware that specific resources exist to assist with the process of saving for college. In fact, 529 college savings plans are designated plans that allow contributions to grow tax-free. Withdrawals are tax-free as long as the money is used for qualified educational expenses like tuition, textbooks or room and board.
Operational fees and plan structure will differ by state but in general, 529s offer parents a tool in overcoming the challenge of college affordability.
Think outside the box
There are a few other strategies that can assist parents in saving for their child’s education. Start by identifying areas where you can cut spending and allocate that money toward college savings. Additionally, consider turning any extra or unexpected income such as a holiday bonus or tax return into college savings contributions.
Although it may not seem like a significant amount, a few extra dollars each year can make a huge difference when it comes time to begin withdrawals.
Don’t let concerns over affording a college education for your child get the best of you. Saving for college is certainly a daunting task, but a proactive approach can make the process more manageable.
• Ronald Stenger is a managing director, wealth management and wealth adviser with the Wealth Management Division of Morgan Stanley in Oak Brook.