How to Set a Budget for College)
For many families and students, student loan debt is a big burden. According to estimates, 69 percent of college students in the 2018 class took out student loans, with an average debt of $29,800.
As parents, we want to save our children from graduating with too much debt when they start their professions, even if it means setting aside money in a college fund to assist them. The reality is that between paying bills, paying down debt, and saving for retirement, there isn’t much money left over to save for the price of higher education.
Here are a few key ways you can set aside money for college without taking too much away from your other financial goals.
Time can be a useful ally.
To begin with, if your children are in elementary school or younger, you have a significant advantage in terms of college savings: time.
Opening a Coverdell Education Savings Account (ESA) or a 529 plan for your child can be a great method to prepare for college while also receiving some tax benefits (think taxes!). You can save and invest money in these accounts over time. The more time you have between starting to contribute and starting to withdraw, the better.
Compound interest can help you increase the size of your donations without having to invest a large sum of money. You can invest your money in both types of accounts and have it grow tax-free. You can also withdraw tax-free if they are utilized for educational expenditures (such as tuition at a qualifying institution).
ESA accounts can be used to pay for K-12 expenses, but you’re only allowed to contribute $2,000 each year. Despite the fact that the 529 plan has no contribution limit, most parents restrict annual donations to $15,000 to avoid paying the federal gift tax.
Benefits of the 529 Plan
The benefits of 529 plans were formerly limited to college education exclusively, but the law has recently been expanded to allow parents to use them to pay for their children’s education at private elementary and high schools.
Previously, only Coverdell Education Savings Accounts were eligible for this benefit (ESA). Parents with younger children in private schools can now participate in the 529 plan, which enhances parents’ educational options by providing a tax benefit if they choose to send their children to private school.
You should also verify if your state provides a tax deductible for your contributions, as setting them up is a rather simple and painless process.
The Fine Art of Scholarship Hunting
What if your kid is older and you don’t have that many years before they are attending college – how can you ‘catch-up’ on savings? Well first off, you can help your child master the art of scholarship hunting.
When I interviewed College Admissions Coach and Scholarship Strategist, Jack , I found there are plenty of ways you can get the ball rolling:
• Be aware of your educational alternatives: Jack’s kid had expressed an interest in painting, so they began looking into highly regarded art colleges as well as in-state possibilities with strong art programmers. They also looked at how substantial a school’s financial aid programmers were.
• Take a look at all of your connections. When looking for a scholarship, don’t just focus on the big, well-known sites. Check to see whether your firm, professional and/or recreational organizations, or the industry you work in give scholarships.
• Everything adds up. While large sums of money may be appealing when considering where to apply for a scholarship, you can bet there will be stiff competition. Mix and distribute your applications so that you can increase your scholarship funds by applying to several programmer.
Finessing Your Budget for College Savings
You’ll need money to donate to your child’s college fund in either case. Remember to do the following as you get started:
- Know your numbers.
The first stage is to look for money leaks in your budget, which are those “extra” expenses that aren’t exactly in your budget. Mint, for example, makes it simple to find what you need. You can also keep track of your expenditures so that you’ll be more inclined to stay to your budget as time goes on.
- Focus on one expense at a time.
I understand our want to slash everything at once, but if you want to save money for college without sacrificing morale, slow and steady is the way to go. Participate in a money challenge — it’s a fun method to cut costs that can then be allocated to college activities.
- Be a part of the gig economy.
To be honest, if you want to achieve all of your objectives, you may simply need to earn more money. That doesn’t mean you have to take on another work to make ends meet. If you’re looking to supplement your income, working a flexible schedule with services like Uber and Fiverr can make a significant difference in your budget.