Thinking about saving for college? These three rules will help you focus on what counts.
- Start early. The earlier you start, the more your small seed will grow. Start saving one hundred dollars a month when your child is in fifth grade for nine years with an eight percent annual return, and you’ve got almost $15,750—about half of which is from return on your investment.
- Invest often. Big projects are done best piece by piece. Commit now to set aside five dollars, fifty dollars, or two hundred fifty dollars a month. Better yet, have that amount taken out of your paycheck. Send refunds, rebates, and loose change straight to the college fund. Once you’ve started, you’ll be surprised how fast your savings can grow when you let others know that instead of buying your child a toy that will soon be broken, gifts can be made directly to the college fund.
- Don’t wait. Yes, you should consider saving for retirement or a home a higher priority. But even if all you can set aside right now is twenty-five dollars, pick up the phone or hop online and do it today. Telling your kids that they’ve got money set aside for college will give them something to pin their dreams to. Asking them to contribute something to the pot will double their commitment to realizing that dream while teaching them to save. Ask them to drop a dime in their college jar for every dollar they get. No matter how little it adds up to, it will teach them to work toward a goal.
Will saving now cut my child’s financial aid later? A little for some people, but you’re still better off having money than not—just like you’re better off earning wages than not despite income taxes. Using today’s aid formulas, a low- or middle-income family could lose up to five dollars in aid for every one hundred dollars extra that they save in many financial-aid tools. But higher income families should save all they can because they probably won’t qualify for need-based aid anyway.