When Should I Start Saving for My Childs College Years?

by Mike on January 15, 2014

When Should I Start Saving for My Childs College Years?

Sometimes it’s good to start planning for the future as soon as possible. When your child is born and you’re holding him or her in your arms, starting a college fund is probably the last thing you’ll be thinking about. In East Germany, the land beyond the Berlin Wall, the only car manufactured locally was the Trabant– a box like thing that barely had more power than a lawnmower. The joke was that you needed to register for one as soon as your child was born, since they would need to wait for about twenty years until they received it. So while you don’t quite need to hand your baby back to the doctor, rush to your local bank and start a college savings account; you shouldn’t really delay it for too long. How much will it all cost? And since life is expensive enough, how will you be able to save enough?

The Average Cost

In 2013, the average yearly cost of college was approximately $15,000, according to CNN. This figure takes into account accommodation and food, fees, tuition and books, although it can be somewhat misleading- that cost can skyrocket depending on the field of study, the university in question and the students parental income. But even at the average cost- $15,000 per year for four years sure adds up.

The Basic Way of Saving for College

Starting early is the best way to ensure an adequate nest egg for college, and allocating $25 per week for 18 years, taking average interest rates into account, should result in approximately $48,000 when your son or daughter is ready to start college. Tax breaks and financial aid might be available to make up any shortfall.

Letting Your Investments Contribute to College Costs

You should avoid dipping into your 401K or other retirement savings, since the older you get, the more difficult it is to replace those funds. You could follow the lead of countless sitcom families and put spare change into a “college savings” jar, but this isn’t really going to do the job. A slow but steady investment in relatively safe stocks is a great way of building a college investment than can fund the lion’s share of the cost, and you can liquidate these into cash as your child reaches college age, or even earlier if the stocks hit a particularly favorable high.

Other Methods of Saving

Saving for college can be monumentally difficult, and yet there are ways to make it easier. Talk to your accountant or financial adviser about the best process to make it easier for your child to qualify for financial aid; what levels of assets should be kept in your name, how to legitimately lower your net worth at key times, and raising contributions to your retirement fund. You may also need to consider the prospect of student loans, but don’t worry about that unless it becomes absolutely necessary. Student loans are like mortgages and traditional loans- there are many providers offering a multitude of different loans, so be prepared to shop around until you find the one that best suits your needs.

The key idea about saving for college is to start sooner rather than later; particularly since you might be blessed with another bundle of joy further along the road, and you’ll need to start a savings fund for them too. If worst comes to worst, you can always wait until your kids are old enough to push a lawnmower and then send them to work! It sure beats putting your spare change into a jar…

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