Saving Money for College
Overcoming the Barriers
Many families struggle with saving money for college. It can seem nearly impossible to know how to save for college, how to eliminate debt, and how to save for retirement all at the same time.
With the cost of education rapidly increasing, most parents know intuitively that they should start college savings accounts when their children are young. However, for a variety of reasons, saving for college gets put on the back burner.
Obstacles to Saving Money for College
Some families simply do not have enough income to meet current needs. With the high level of unemployment and underemployment, many people can barely put food on the table. For them, there is no money available to put into a college savings fund. They worry about how to afford college for their children without the benefit of savings.
Others are caught in the debt trap. Usually this is from excessive spending on credit cards, but it could also be due to car loans, high mortgage payments, or even the parents’ student loans. With debt obligations, there is little money left over for college savings accounts.
Complacency is another barrier to starting college savings funds. When children are young, the college years seem far off. As they get older, other financial priorities win out and it becomes easy to get caught up in the busyness of life.
Debt, Retirement, or College Saving Plan?
When faced with the competing needs of paying off debt, contributing to a retirement account, or funding a college saving plan for their children, many people feel overwhelmed and confused. It is easy to understand the urgency of each need. Time and compound interest work in our favor in saving for retirement and college. Conversely, time and compound interest work against us when it comes to debt.
It is unrealistic for people to work on all three goals at once, especially with limited dollars available. The first priority must be to get out of debt entirely, with the possible exception of a mortgage. By eliminating debt, you free up cash flow to be used for savings.
The second priority should be financial planning for retirement. This must take priority over funding a college savings account. You can take out loans for college but you can’t take out loans for retirement.
This isn’t to say you need to fund your retirement entirely before you can start working on saving money for college. However, in order to assure yourself of a secure retirement, you should be contributing regularly to a retirement plan throughout your career.
A financial freedom plan is a good tool to use to sort out these priorities. It helps you to think about what is needed to achieve each goal and enables you to plot out a course of action for meeting your goals.
How to Save for College
If you have discretionary income, direct all you can toward saving money for college. Too many upper middle class families run in to trouble paying for college for their children because they failed to save. These families often don’t qualify for financial aid and may actually end up with more in educational loans than families with lower incomes. If there are two earners in your family, consider trying to live on one income and saving some or all of the other spouse’s income for the college fund.
Get your children involved in saving for college. When students save money for their own college education, they are more invested in their future and may make better decisions when it comes time to choose a college. ”Money Management For Teens” and ”College Student Money Management” are two articles that discuss in detail how to encourage your older children to better handle money.
Enlist help from the grandparents. Instead of toys and other types of presents, encourage your parents to make contributions to your children’s college savings accounts for birthdays or other special occasions.
Learn how to live frugally. See if there are changes you can make to your lifestyle that would free up money to save for college. If you are truly having trouble saving money for college, look for adjustments that you can make to your lifestyle. Can you live with less in terms of cars, vacations, or your home? Do you need to eat out as much as you do? Use the savings interest calculator to see how saving even small amounts on a regular basis really makes a difference.
Saving money for college is one of the biggest financial challenges most families face. It is important to put it in perspective and plan for it along with other financial priorities.
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