Saving for college is one of the most pressing issues facing parents today. All parents desire to give their children the best in life, and for most parents, this means planning for their childís college education.
Financial pressures often make it seem like saving for your child's education simply isn't possible, but the best time to start saving for college is right now! So what should you as a budget-conscious parent do?
ďIt's never too early to begin planning how youíll help your child pay for college,Ē says Jane Ann Schiltz, vice president of marketing for Northwestern Mutual Financial Network.
"Take a close look at the cost of a typical college education and you'll realize that the sooner you begin to save, the better off you'll be when it comes time to start writing those tuition checks!"
According to The College Board, the average price of a four-year college degree at a private university last year was $110,708. Based on the average historical inflation rates for college expenses over the past ten years, the cost of that same college education in the year 2020 will be $216,636.
And these skyrocketing costs won't apply just to the prestigious private colleges and universities! Tuition and other costs at public institutions, having been besieged by budget cuts, have also risen sharply in the last few years.
Throw into the mix an ever increasing demand for financial aid at a time when those funds are steadily dwindling at American colleges and universities, and it's quite clear that students and their families will be facing huge tuition bills and other education related expenses.
But despite their best intentions, 44% of all parents with college-bound children aren't saving for their kidís college education, according to a recent Harris Interactive survey conducted for Northwestern Mutual.
If you're part of that 44% that hasnít started saving yet, there is no need to panic. Itís never too late to begin saving for your child's education.
As with most things in life, planning is the key to reaching your financial goals and making sure that your children will have the funds to attend the college of their choice when the time comes.
If you're simply overwhelmed by the thought of developing a college savings plan, consult a qualified financial representative who can help you establish a college funding strategy that will meet your goals.
There are a wide variety of strategies to fund your childís college education. You just need to find the combination of investment options that is right for you and your family.
Schiltz offers these important points to keep in mind while laying out your college savings plan:
By carefully examining all of your college funding options, you can take a "big picture" approach to saving for your kids' college educations and have a clearer understanding of what will work best for your family.
- Set a goal. The first step in the planning process is to determine how much money your children will need for their college expenses. Once you have arrived at an estimated funding goal, you can develop a plan to help you reach it.
- Get your family's finances in order. Saving for college has to be part of your total financial plan, not a goal all by itself.
Your retirement plan, life insurance policy, will, and other investment vehicles must be in order to determine how saving for college fits into your overall financial plans.
- Know which college saving options are available to you. Understand what they are, how they work, and the advantages and disadvantages of each.
There are many effective ways to save for your childís college education, including Coverdell Education Savings Accounts, Section 529 Plans, Custodial Accounts, and other investment options including savings accounts, mutual funds, CDs, stocks, and bonds.
Each of these college funding options has its own advantages and disadvantages. A qualified financial advisor can help you evaluate the choices and select the ones that best meet your family's needs and goals.
- Donít forget about life insurance! This may not be your first consideration when thinking about saving for college, but it is a very important part of your financial plan.
Permanent life insurance can play a role in paying for your children's college education in a number of ways. Most importantly, if you're no longer around when it comes time for college, your child can use the proceeds to fund their dream of attaining a college degree.
And depending on the type of policy and how itís structured, you may also be able to draw on the cash value to help bridge the ever-increasing gap between financial aid and tuition costs.
Be sure to check with a qualified financial professional on the advantages and disadvantages of borrowing from your policy.
- Remember to consider the possible tax and financial aid implications of each of your saving options. Some college savings vehicles are taxable, but others aren't.
Also, some of these accounts could impact your child's future financial aid eligibility while others wonít. Once again, you should ask a professional to help you evaluate these choices.
- Get the entire family involved in saving for your child's college expenses. By using several of the options listed above, including Coverdell accounts and custodial accounts, your child's grandparents and other family members can help contribute to her college education if they so desire.
Article courtesy of Northwestern Mutual.
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