Worried about whether or not you're behind on starting a college savings plan for your child?
The last thing I was thinking about while pregnant was setting up a college savings plan for my daughter. Five years later, I'm still trying to figure things out when it comes to savings. I've been lucky to get help from my parents and I want to do the right thing with my own money, too. Recently I did my interview over the phone with Representative Brian Smith, Licensed college planner with College Planning Services (CPS). While this was convenient, I then had the opportunity to meet with my very own college planning representative. When I started the process I had several questions.
How much should I think about saving every month toward my child's future education?
This was the first thing I asked the representative, preparing myself for a big number. But his response made me feel less overwhelmed. He suggested that, "Instead of thinking about the big picture number, it's best to think about it as how much you can handle and what's realistic for your family."The representative then elaborated, encouraging parents to talk about priorities, getting family involved, sooner rather than later, and putting away what you can handle each month. He also mentioned that many plans, including the College Planning Success Plan, can be started with just $250 initial contribution or $50 a month.
You're tight on cash and potentially dealing with one income after baby arrives. What's a smart routine for putting money aside?
The CPS professional answers with, "Everyone that's bringing a new baby into their lives is going through a change, so it's important to really sit down and talk about where your priorities are." If saving for your child's education is more important than that bigger car, you're both on the right path. We all have the tendency to get caught up with baby fever, but the reality is that your little one doesn't care if she's in a shiny new minivan or your used hatchback.
What's the difference between setting up a savings account at my bank or starting a College Planning Success Plan when it comes to saving?
The Success Plan is currently the most effective way to save for a child's education because it gives you tax benefits that don't exist with any other account." This is the best vehicle to accumulate funds and it doesn't hurt you later when filling out the FAFSA. This means more money towards college, and less towards taxes than with other types of accounts.
Should I have automatic deductions taken from my paycheck to my child's college savings plan?
Yes! One of the biggest adjustments I've recently made is to start having deductions automatically taken from my paycheck. Anything you can do to automate the process that helps you achieve your goal so that you only have to make one decision and not a decision every single paycheck, every single month, is much more effective. Once you set it up to automatically happen, it just does and you end up forgetting about it. Plus, the power of compounding these funds for your child can be pretty impactful. So, saving regularly and often is what you should aim to do."
He said, "Everyone says how maxed out and strapped they are. You can do it. This really hit home for me because I know that if others are doing this, I can do it. People do this all the time. Try it for three months. If, after three months, putting $50, $100 or $200 a month into an account is too much, you can always lower it. But, the most important thing to do, is start now. No matter how much, or little it may seem you're saving."
His final words really made sense and got me thinking. He said, "We can only see the car someone drives, only see the stroller they bought, but debt and savings are invisible. You don't know what their credit card balance is, you don't know what type of conversations are being had. All we're doing is looking at what we can see, which gives us a very skewed vision of what's going on. Make sure to align your saving to your priorities."