Creative Approaches to Building Your Child’s College Fund

Raising kids can be expensive, and according to The Brookings Institution, the cost of bringing up a child from birth to 17 is over $300,000. And that doesn’t even include higher education costs. Setting up a college fund for your kids is a smart move to help them succeed as adults. So, how do you start saving for your child’s college?

**The Cost of College Education**

On average, tuition for the 2022-2023 academic year was about $39,723 for private colleges and $10,423 for public, in-state schools, according to a U.S. News survey. If nothing changes in education funding, these costs will likely keep rising. College expenses have been growing about twice as fast as inflation, a trend that’s expected to continue. Here’s what you might be looking at for college costs, covering tuition, fees, living expenses, and meals when your kids are ready for college, assuming a steady 6% increase in costs.

**How to Save for Your Child’s College Education**

Saving for college is a wise financial decision but requires planning and dedication. Here are some steps to make it easier:

1. **Start Early:** The sooner you begin, the more time your money has to grow. Ideally, start a college fund as soon as your child is born. Regular contributions, whether monthly or annually, combined with compound interest, will help your savings grow over time. This means you don’t have to save as much each month to reach your goal.

2. **Understand the Costs:** College expenses can include unexpected items. By understanding these, you can compare different schools and find ways to cut costs, helping you set a clear savings target.

3. **Choose the Right Savings Strategy:** If you start saving early, look into savings options that benefit education funding. Tax-advantaged accounts like 529 plans offer tax benefits and flexibility for educational spending. Another option is the Coverdell Education Savings Account (ESA).

4. **Automate Your Savings:** Setting up automatic savings into your college fund helps your savings grow steadily. Each monthly deposit adds up, and compound interest boosts your savings further. Automated savings also ensure regular contributions.

5. **Include Family:** Share your college savings goals with grandparents and relatives who might want to contribute for birthdays or holidays. You can add a link to your child’s 529 account in birthday invitations and mention it’s an option for gifts.

6. **Make Smart Investments:** Consider diverse investment strategies based on your risk level and timeline. Many college savings plans offer various investment options. Regularly review and adjust your investments as needed.

7. **Look into Scholarships and Financial Aid:** Explore scholarships and financial aid options. While they can’t replace savings, they can reduce overall costs.

**Where to Invest Your Money**

– **529 Savings Plans:** These state-sponsored accounts are designed for school costs and offer various funds like mutual funds, bond funds, and ETFs. They’re preferred for college savings due to tax advantages; you can contribute up to $15,000 tax-free (for singles), and earnings grow tax-free.

– **Traditional and Roth IRAs:** These tax-advantaged accounts can hold investments like stocks, bonds, and mutual funds. You have the flexibility to choose investments based on your needs and goals.

– **Custodial Accounts:** UGMA and UTMA accounts allow you to hold money or assets on behalf of a minor. As the trustee, you manage the account until the child reaches adulthood, at which point they can use the funds as they wish—even if not for education.

**Conclusion**

College costs are rising fast, so it’s crucial for parents to start saving early to maximize investment returns. Once you’ve decided how much of your child’s college costs you plan to cover, you can work out a plan for regular savings. Consider using a 529 plan, brokerage account, or prepaid tuition plan, with a 529 plan likely offering the most tax benefits and flexibility. Keep in mind that every family’s financial situation is different, so customize your savings plan based on your specific needs and regularly update it as your family and finances change.