College expenses versus college savings are the major topic every year when it comes to paying and receiving money.
Even though you have a debt to pay or you don’t, having a college degree is amazing.
It could fetch you with a good salary package when you have more educational qualifications.
According to Sallie Mae, just about 56% of the parents, with an average of only $18,135, are investing in savings for their children’s education.
According to the College Board also, it doesn’t support the expenses at an in-state public schools/colleges.
Should I Really Start Saving For College?
Yes, savings are a big investment for every single person.
Start your savings immediately without hesitation, especially when it is related to your college fundings.
Investing your money is a huge plan when your expenses are more than your savings.
Don’t be that person who plans for savings after your child starts their educational, but instead try savings right from their birth. This will make a huge difference.
According to Joseph Voellm, a financial advisor at the JL Smith Group in Avon, Ohio, who focuses on retirement plannings says; “ a parent, grandparent, guardian or really anybody else who wishes to fund to that child’s future educational expenses should start right away, if not when they’re born.”
Even if you’re late, you can afford to open a savings bank account with tax benefits.
How Much To Save For College Per Month?
Every single year passes by, there is a high wave of increase in college tuition and fees. And in order to tackle those expenses, try saving about 1/3th of the costs you’re expecting. The remaining ⅔th can be paid slowly through loans, grants, and future income.
To account for your expenses, research more on the costs of the desired schools you’re attempting to send. Update yourself with the latest fee details, calculate it, divide the expenses per month.
Estimate, plan and put the amount accordingly into your monthly financial savings.
Consult the best options to exercise with your financial aid advisor.
Also, read about How to Make a Budget That Saves Your Money Daily?
Brief Tips To Students For Their College Savings
Below are a few tips you could follow to add some money to your wallet.
Filling Out The FAFSA Every Single Year
Filling out FAFSA is a must jackpot. Students often lose their opportunity to receive financial aid for the future, even if you don’t get grants or scholarships that year.
The FAFSA needs to be filled every year while you are still in school.
Manage Your Student Loans/Debt Status
Be very precise about the student loan that you borrow. If you exceed your limitations on your student loans/debts, you will financially struggle. When you think of borrowing, try to consider the ROI of your college education
Apply For Scholarships
Scholarships and grants are free money, apply for scholarships in areas where your child is eligible. Eg in athletics, academics and extracurricular activities. Try searching for debt-free scholarships.
Take AP Classes
Advanced Placement (AP) opens a way to let students earn credits while they are still studying.
Get A Job
Save money and gain work experience. Be it full-time or part-time. Are you still studying and cannot invest all your time working? Get a part-time job to earn some money to pay for your college.
Start Opening A Savings Account
Store all of your money in a savings account. Banks do offer accounts especially for students with safe conditions.
Spend Less, Save More
- Students should save their birthday money or when you receive an allowance.
- Live at home and save transportation expenses.
- Compare the expenses of living on-campus vs. off-campus
- Deal with your budgets.
- Get a creative meal plan.
Save Money On Books And Supplies
Buy second-hand books or get it from the libraries.
Attend Classes At Community College
The cost of attending private schools is much higher than attending tuition at a community college.
Try In-State Schools
Average tuition fees for in-state school is $10,230 per year, and the average tuition fees for out-of-state is $26,290 per year. That is a huge difference between the budgets.
Investments
Investment is a form of generating income by investing/funding your money for profit growth. Through investment, double your money.
Also, understand why you would want to save up money. Having an end goal would give you an idea of how to save your money.
Know more about Top 5 crucial financial tips to succeed
How Do I choose The Right Savings Plans?
Here are several ways you and your parents both can hit for good savings. Listed below are some of the rights plans you can choose for savings.
1. Traditional Savings Account
It is a type of account used for short-term savings and emergency funds since traditional times.
Currently, the savings account in the nations pay around 2% APY.
Pros
The safest places to store your money or the money you’re planning to invest in your future. However, make sure your account is insured by the federal deposit insurance corporation or the national union administration.
Your account is guaranteed to earn a good interest rate.
Cons
According to Sallie Mae, parents save for college have parked closely $4000. One needs to be very careful with college savings when storing it in a traditional bank account.
Mark Kantrowitz, an expert on student financial aid, stated that there is an asset allowance, or APA, that protects a portion of the parent’s assets, based on the age of the parent when determining financial aid.
Financial aid is taken into account depending on the parent’s income and assets from years. Students with sizable savings in their names could finish with few packages. The S&P 500 has given an average total return of 12.29% over the past five years, according to Morningstar.
2. 529 College Plans
It is a tax-advantaged savings account, to help with your need for educational expenses. Its operating process is similar to a Roth IRA, 529 college savings plans allow your parents to invest after-tax money, low-cost stock and bond funds.
Pros
- Access to employer-sponsored 529 plans at work.
- It can be used for graduate and undergraduate studies in the United States. If your child is not attending colleges, their services can be changed.
- Can use 529 plan funds to make up their non-college expenses.
- Separate accounts like the ABLE account, to meet the costs for disabilities children and young adults.
- They cover the costs up to $10,000 per beneficiary for K-12 students who are going to private schools.
Cons
- Additional taxes and penalties at the state level.
- Unqualified costs affect income tax and 10% income penalties.
- Switching the investments could be done only twice per year.
3. Roth IRA
A type of account used for long-term savings on retirement. Contribution to this type of accounts is made using after-tax dollars.
Pros
- It is a type of savings account with tax-free. After your children complete their studies, the overall funds can be stored for your retirement.
- Accounts on Roth IRA withdrawals keep their customers from taking savings out penalty-free until the age of 59.5 years.
Cons
The average expense of sending your children to a public in-state school for a particular year costs more than $21,000. However, annual Roth IRA contributions are limited at present to about $6000.
4.Coverdell Education Savings Account
It is an alternative to a 529 plan. These types of savings accounts are made to support families on their college expenditures for elementary and secondary education.
Pros
- Plans like 529 and Coverdell ESAs allow families to take part using after-tax dollars savings grow tax-free. And the similarities in both the accounts is that withdrawals are tax-free as far as the savings are used for certain costs.
- It can make up expenses for uniforms, tuition programs, k-12 expenses with penalty-free.
Cons
- Low contribution limit.
- Parents can contribute up to $2,000 per year.
- Limited for children of 18 years old. Funds must be withdrawn when you reach 30 years old.
5. Prepaid Tuition Plans
It’s a prepaid tuition plan which is an alternative when compared to a 529 savings plan, which may be soothing to some parents. It is developed to make sure that parents make their children go to an in-state public university.
These plans permit advanced to pay for tuition at an estimated price.
Pros
- Retain the same tax, financial aid, parental protections as that of a 529 plan.
- It helps to lock in the tuition rates when college expenses continue to rise.
- Chances of refund and transfer funds even if your child transfers to another school.
Cons
- It is limited. It is available for students and parents, who are residents of the state attending a public college there.
- Changing beneficiaries at an uncertain time must cause you to pay a 10% penalty with income tax or funds used for other purposes other than for tuition fees.
6. UGMA Or UTMA Accounts
UGMA and or UTMA are custodial accounts that give adults to transfer savings to their children below 18 years with tax-breaks.
Note – UGMA (Uniform Gift to Minors Act), UTMA(Uniform Transfer to Minors Act).
Pros
- Tax-free.
- Unlimited use of funds if they are profiting the child.
- The investment opportunities are flexible.
- Stock and bonds, art and real estate are possible.
Cons
- Cannot change the beneficiary after selecting.
- It can have a bad impact on the children’s financial aid to qualifying, with the assets in possession.
7. Trusts
It is again another way for parents to save for funding their children’s future. An educational trust can be utilized when an individual wants to take assets on behalf of someone with the thought of returning back to them.
Pros
- Flexibility with funds.
- It is good for those individuals who like to transfer assets or reduce their tax.
Cons
- Different income tax conditions imply.
- It should be utilized to pay on educational expenditures only.
- Limit the child to use if they unnecessarily spend it.
- Have effects on your student aid eligibility, loans, and various financial assistance if their parents are not careful.
8. Treasury Bonds
A bond is also known as IOU. An agreement is developed under this plan, such that one party loans money to another in return for the real deposit, plus interest when the bond gets old. A Treasury bond is issued by the U.S. government. It is also purchased directly from the U.S. Treasury or a bank or broker.
Pros
- Saving bonds can be a great option for parents who want to protect their plans.
- Risk-free investments strongly supported by the federal government.
- Tax- free if it is used for qualified education expenses by interest on new Series EE Bonds and Series 1 Bonds.
Cons
- Not much to profit or loss on savings bonds to cover the college costs.
- Not everyone gets favorable tax treatment.
Build Your Final Budgets For A Healthy Life
From the time a child is born, build your first steps to college savings for the good safeguard of your children’s career. Consider good and smart saving plans. Retirement would be blissfully beautiful if taken precautions, in building life plans with college savings.
