Every parent wants to send their children to college for higher education. To do so, they put their dreams on hold to save money for their child’s education.
Since the cost of education is high, you should make proper financial plans for your children. Only saving money in a piggy bank is not enough. Also, using retirement funds or accumulating debts to fund your child’s education is a blunder. Remember, retirement funds are essential when you cannot work on your own. So, if you have a child, you need to start saving money from now on.
Here are some ways you can follow to secure your child’s education and financial future.
1. Determine your expenses
To create a budget, you must determine the amount you need to spend on your child’s education. But, first, you need to choose a college you would like to send your child to.
Thus, you will understand the total amount you need to spend on tuition cost, boarding, textbooks, supplies, extracurricular activities, etc.
2. Formulate a budget
Formulating a budget is necessary, but it can be a bit tricky for parents who are funding their child’s education. You have to consider other accounts like IRA (k), 529 savings account, and an emergency fund while creating the budget. Try to deduct all expenses from your total income to understand how much money is left for other expenses. Make sure you exclude all unnecessary expenses. Otherwise, you will not be able to follow your budget.
3. Follow a frugal lifestyle
Kids are costly, especially when they start visiting a school. If you prioritize a frugal lifestyle from the beginning, then it will help you to stay at the top of your finances. However, following a frugal lifestyle is challenging. It needs determination, but it has lots of advantages. It helps to maintain a family budget and set aside money in a savings account. Having enough money in a savings account will give you extra room to make proper education plans for your kids. So, a little determination and sacrifice can make your financial life as well as your kid’s education life better.
4. Be an early bird
Start saving for your kid’s education as early as possible. The price of commodities, education fees, and tuition costs is rising fast. So, if you want to prepare yourself for paying your kid’s college fees, then you have to start saving money just after the birth of the child. Thus, you can have enough money in your bank account to fund your kid’s education.
5. Analyze the EFC
You need to analyze the exact Expected Family Contribution (EFC) that you are supposed to make towards your child’s college education costs. This is often determined by the Federal Government based on all the information you provided in the Free Application for the Federal Student Aid (FAFSA). You have to provide information about your income, net worth, assets, and child’s education costs. All such information can deduce the amount that you can contribute to your child’s education. The lower the EFC you can show, the better the grant your kid will receive.
6. Get your child involved
You must involve your kids in this matter. If your income is low enough to cover the cost of a private college, then talk to your child regarding the matter. Don’t borrow money beyond your affordability; otherwise, you will suffer during retirement. Ask your child to join a part-time job. If the child chooses a college beyond his means, then he has to take responsibility for its funding.
7. Take advantage of the 401 (K) offered by your employer
If your company offers a 401(k) savings plan, then take advantage of it. Thus you can grow money tax-free. You can get more advantage of free money if your employer offers a dollar-for-dollar percentage match.
Suppose you are earning $1,000 per week, and your company is offering a 5% dollar-for-dollar match.
If you’re contributing 60% of your weekly gross income into your 401(k), then your company needs to deposit an additional 60% into your account, which means you’re saving nearly $3000 free money into your retirement account in a year.
8. Inject financial education into kids
Money lessons for kids are essential. Why? The answer is, a student who isn’t taught financial education may not be able to manage money, budget, maintaining a checkbook, and so on. Above all, handling credit cards requires financial literacy. Otherwise, a younger student could be trapped by a vicious credit card debt cycle. Remember, giving credit cards to a new college-goer is not enough. You have to teach your child about the proper usage of credit cards. Thus, your child will learn how to save hard-earned money, how to pay off the student loan, and how to avoid financial disaster.
9. Review your life insurance policy
Some people pay more than what they need on their life insurance policies. Thus, a large part of the monthly income goes towards the life insurance premiums. If you are one of them, then review your life insurance policy instead of wasting money on unnecessary coverage. You can save money toward your retirement fund or child’s college fund.
10. Try to automate your savings
Once you automate your savings, a portion of your paycheck will be saved in your account automatically every month. Thus, you will be able to save money even on a tight budget.
11. Open a 529 savings plan
A 529 savings plan allows you to save tax-free money for your child’s higher education. Ask your family members to contribute to 529 accounts instead of wasting money on expensive gifts.
12. Gather knowledge about grants
As per the “No Child Left Behind Act”, the Federal Government is trying to give a large amount of money into the hands of the college students to help them complete higher education and become responsible US citizens. By accessing the money of the Federal grants, a higher number of students are gaining their diplomas.
If you are still wondering about the difference between scholarships and student loans, then you must be aware of the fact that the grants are a free gift and thus don’t need to be repaid like student loans. You should gather information on such federal grants that are designed to help students fund higher education.
13. Seek professional help
Sometimes you may get confused about your priorities in life. Being a parent, you always want to pay for your child’s higher education. But you must not ignore your financial future. If you’re not getting answers yourself, then you can talk to a financial advisor for help. An advisor can tell you how to save for your child besides your retirement account.
Lastly, remember, stealing money from a retirement account is a big no-no. Taking money out of your retirement savings account is a big mistake. Remember, retirement savings are a necessity. Your child’s education cost will be managed with your help or without your help.
Don’t feel ashamed if you’re unable to fund your child’s education. There are many options for your child but fewer options for you when you’re unable to work due to old age. Federal financial aid provided by the schools is the right option for struggling parents who want to protect their child from the vicious cycle of student loan debt. Browse online to find out more information.
If you still want to take out student loans, then talk to a financial advisor to know the best option suitable for your financial situation.