When is the best time to start saving for college? Financial gurus will tell you that the optimum time is before the child is even conceived. Organized parents may start a savings plan right around the day the child is born. Meanwhile, the rest of us who are living in the real world realize that we should have started saving a long time ago, but life got in the way. While obviously starting earlier is better than playing catch up during the teen years, the good news is that there are useful savings plans for every stage of childhood.
10 Years Until College
Parents who start saving early are at a distinct advantage. They have the benefit of time on their hands, and even a little bit socked away each month will eventually add up if given enough time. A financial planner can help these early savers determine the best way to invest college savings. In the United States, 529 plans are touted as a great avenue for saving, but they aren’t right for everyone. Financial planners may suggest other methods, such as a Coverdell account, life insurance policy, or tax-deferred annuity to help with college costs.
5 to 10 Years Until College
Parents still have time to start saving even if children are a little older, but the gift of time is drawing to a close. With a shorter time span comes a renewed sense of urgency. While it may be tempting to take the kids meager nest egg to Vegas and let it ride, it’s not the best idea. Conservative monthly investments are better than one big risky investment in the next big thing. Changes in circumstances, like the birth of a new baby or a change in career, can make it necessary to adapt and adjust. It’s also sometimes wise to postpone college savings in lieu of other expenses. Retirement savings should be paramount to college savings because whereas college students may quality for student loans, retirees are not entitled to such generosity.
3 to 4 Years Until College
Crunch time. While there is very little time to build savings, every little bit helps. Don’t beat yourself up about the woulda, shoulda, couldas, and start taking concrete steps to create even a little bit of savings. This is not a time to make risky investments; play it safe so that there’s some money on graduation day. By this time, parents may have the benefit of knowing what college will cost and whether or not scholarships are realistic options for their child.
Help your child be realistic with their expectations. State colleges boast excellent academic programs at a lowered cost for in-state residents, and many students can take advantage of community colleges to earn college credits (especially general requirements classes) on the cheap. It’s also important to remember that asking a student to help pay his or her own college costs not only builds character, but creates an incentive for the child to make it on time to that 7:30 a.m. lab. It is, after all, his money he’s wasting if he misses it.
Regardless of your child’s age, remain pragmatic about your savings plans. While paying for your child’s college career is a laudable goal, it does not automatically grant you parent of the year. Save what you can while you can, but keep in mind that scholarships, financial aid, work studies, internships, or even a child’s own earnings can all go toward paying down college costs. While loans are a scary proposition, especially for parents who are still paying off college loans of their own, they can be a reasonable source of college funding as long as the loan amount and interest rates are kept in check.