With the average cost of a four-year college degree hovering around $100,000 per student, it’s no wonder the world of student loan debt has taken center stage with regard to family finance. If you, or a family member, have a goal of obtaining higher education, it’s time to consider how you will make that goal a financial reality.
The Best Way To Save for College
Looking for the best way to save for college? Check out the following:
Set a Goal
Without a clear goal, you’ll never reach the outcome you desire.
First things first, if you can’t clearly define what your goal is, and how you will go about achieving it, you’ll never be successful with that goal. Something else will always come along to distract you and, without that clear plan as to what you will say “yes” and “no” to, your plan to fund your higher education experience may not work.
By setting a goal to save for higher education with a precise amount ($100,000), time frame (when my kids graduate high school), and purpose (for college expenses), you’ll be able to communicate that goal to those around you, measure your progress throughout the process, and stick with it, even when it no longer feels fun.
What’s your goal, and how will you achieve it
You may not be able to fund 100% of your child’s (or your own) higher education but decide what’s realistic. If your child is approaching their senior year of high school, then the likelihood of saving $100,000 before he or she moves on to college is not as likely as it is if your child is entering pre-school. Keep that goal reasonable for your financial situation. By doing so, you’ll be more likely to stick with it rather than always feeling like a failure when it comes to your savings plan.
When looking for the best way to save for college, know that you won’t succeed if you have an unrealistic expectation of your financial situation. If you are struggling to figure out what a realistic amount is for you and your family, consider working with a financial planner to help you iron out the details.
Embrace Tax-Advantaged Savings
If you are planning on saving money toward your child’s tuition (or even your own), it’s a good idea to consider savings plans with reasonable interest rates and, whenever possible, tax advantages.
A 529 plan, or qualified tuition plan as it’s formally known, is a great way to get started. This tax-advantaged savings plan is designed to help you save specifically for education costs, with often higher returns than a typical savings account. When the money is withdrawn to pay for college or educational expenses, it will not be taxed, making it an excellent option for parents looking to provide for their child’s educational future.
The more automated a savings or financial plan is, the more likely it is to succeed. If you have a separate savings account or a 529 plan to save for higher education, then it makes sense to automate your monthly deposits so that you stay on track.
There are two easy ways to do this:
Method #1: Split Your Direct Deposit
The majority of paycheck deposits come in the form of direct deposit. If that’s the case for you, take the time to split that direct deposit between multiple accounts. For example, you may choose to divert $500 out of each paycheck to your 529 plan. By doing so, you’ll be less likely to notice the money missing from your monthly budget, and more likely to succeed in that savings goal.
Talk with your employer to determine the paperwork necessary to make that direct deposit happen.
Method #2: Set Up Automatic Transfers
Another method of automatic savings involves setting up automatic transfers from your checking or savings account to another account you own. In this case, it could be a 529 plan or a regular savings account. For example, you may choose to have $400 transferred from your checking to your savings account on both the 1st and the 15th of the month, coinciding you’re your paycheck deposits.
It can be tempting to transfer the money manually after you’ve paid the monthly bills, but that also leaves you open to use the money for something else, forgoing the savings plan you’ve created. By automating the process, you’ll notice that the savings add up quickly and, over time, you won’t even miss that additional amount.
Note: You can adjust those transfers at any time and, even switch the accounts when and if necessary.
As with any goal you might set for yourself or your family, it’s critical to review your progress at least annually. You may choose to do this around the end of the school year, in anticipation of starting or funding school for the following year, but many prefer to do so in combination with submitting their taxes. Whatever you choose, make a point to review your portfolio consistently and make any adjustments necessary.
Things to consider:
- Has your income changed? If so, do you need to increase/decrease your savings deposits?
- How have your returns been? Is your allocation still aligned with your investment objectives?
- Are you meeting your monthly and yearly savings goals?
- Have you received “bonus income” in the form of tax refunds, tip money, or employee bonuses?
It’s important to remember that life happens, situations arise, and circumstances change, so if you didn’t meet your goal for the month or year, take the time to note what worked and didn’t work, and then make the changes necessary for the following year’s success. In the end, any progress is better than nothing at all.
The Best Way to Save for College: Just Get Started
If you need assistance in designing a plan to meet your higher education savings goal, contact Great Lakes Investment Management for a complimentary consultation. While we work in person with our Ohio clients, we also work with clients virtually nationwide.