Children grow up so fast. One day you’re changing their diapers and the next day you’re driving them to college. Empty nest syndrome can be tough so being emotionally prepared is important. However, being equipped financially is key to your children’s success and your peace of mind. Start a savings plan for your kids so they can have an easier start into their adult life.
Why starting a savings plan for your kids now?
According to the Institute of Education Sciences, the tuition cost for four years at a college or university ranges from $59,480 (public) to $129,900 (private). This doesn’t even include the cost of books, room and board, or other college expenses. So, it’s fair to say that it’s never too early to start saving for your children’s education.
A 529 plan is one of the most recent and talked about methods to start saving money. It’s tax-friendly and offers many investment choices. There are two types of 529s: a prepaid tuition plan and a college saving plan. The prepaid tuition plan allows you to slowly purchase college credits at a “locked in price”, while the college saving plan allows you to create an account and invest on behalf of your student.
There are pros and cons for both plans. For instance, the prepaid plan only works for participating colleges and universities and it only covers tuition and mandatory fees. The college saving plan doesn’t lock in prices, but it can also cover room and board, books, and other expenses. The 529 is similar to the 401(k) you have at work. You can find more information at the U.S. Securities and Exchange Commission and Smart Money.
If a 529 plan is not for you consider another route. Open a savings account with a fair interest rate. If you save $200 a month from the time your child is born they’ll have over $43,000 (without interest). You can also invest in a CD or a time deposit, which will allow your money to gain interest over a selected amount of time.
Also, don’t forget to get your kids involved too; it’s their education after all. Teaching them to save money is not only an important life lesson, but also a great way for them to contribute to their future. The Charles Schwab Corporation, an American brokerage company, offers a fun, six-step handout that should help you and your kids get started. There are also activities to help your kids set their own financial goals.