Starting a family is one of the most exciting things in life. But with all that excitement comes plenty of headaches. From needing to look after your kid’s health to planning for the future, your life will significantly change from now on.
And that’s exactly why you should rethink your financial strategy. One of the best things you can do for your kid is to start saving money for college. If that’s something you want to do, then you’re at the right place.
In this article, we will look at the 4 ways you can do that. So with all that said, let’s start.
Open An Education Savings Account
The easiest thing you can do to start saving money is to open up an education savings account. The great thing about savings accounts is that you don’t need anything to open them. All kinds of savings account will help you better prepare for the road ahead.
Considering that college is quite expensive, it will be smart to start early. What many financial experts recommend is opening a 529 account. All the money that goes into this account is tax-free if you use it to pay for college tuition. Some states even offer tax credits on 529 plans. Since the education system wants to help you save money for school as opposed to punishing you, starting early will give you the best possible chance to do so.
Remember the 2K Rule
A lot of parents are actually unaware of how much money should they be saving for college. While we do have a rough estimate of how expensive college tuition is, a great way to prepare for the financial burden is to maintain the “2K” rule. To easily understand the 2K rule, simply remember this.
The rule suggests that you should have enough saved money equivalent to your kid’s age times $2,000. If your kid is 14 years old, then you should have at least $28,000 saved for college. When they turn 15, make sure that you’ve got $30,000 saved, and so on.
Depending on where your kid plans to go to college, the 2K rule might not cover the entire cost of tuition. That’s why there are others things to do to better prepare you financially.
Investing is always smart. People the invest their money have a much bigger chance of making something later on. While not everyone knows how to invest, there are tons of useful information out there that can prepare you for it. Nobody claims to be an investment guru, so make sure not to fall for these scams.
But simply said, there are tons of ways to invest. From trading stocks to Forex trading to even buying rental property, you can decide what works for you best. What you should remember is that investing is a great way to put your money to good use. The time to start investing is always now.
Take Out A Permanent Life Insurance Policy
Many of the previous ways are meant for middle-class families. But taking out a permanent life insurance policy can turn into a much higher expense. Thus, you should think twice about whether or not you can afford it.
Regardless, a permanent life insurance policy is a move that can provide tax-advantaged savings for multiple things. And one of that includes paying for a college education. The reason why many families do it is that you can access the funds at any time. While many other things depend on the policies of the insurance providers, a permanent life insurance policy is a great way to access money whenever needing it.
Considering that a college education can be one of the most expensive expenses in life, a permanent life insurance policy can be the financial aid you’ve been looking for. But with all that said, you should think long and hard about making such a move as it can be quite costly. It’s also quite common for 10% of a person’s salary to go into the policy.
When To Start Saving For Your Kid’s College Education?
While everyone looks at ways how to save, plenty of others also ask the question of when to start saving. In a previous point, we mentioned that you can start saving from the moment your kid is born. But if you’re reading this and your kid isn’t a toddler anymore, then the right time to start saving is now!
Even if you’re joining the conversation quite late, don’t panic. There are many ways to make up for the lost time. Some of the ways we mentioned, like the 529 plan, are great for late starters. Not only do they provide you with tax benefits that help cut the costs, but they also help you by preparing you financially for such an expense in life. Regardless, you should remember that you need to start saving as early as possible and save however much you can.