Effective College Financial Planning – Overview
If you have or plan to have children, then an effective strategy for college financial planning is critical.
Once you and your partner have made the decision to have children, it is time to start formulating a plan for college financial planning and putting it into effect immediately.
That will give you 18 years or more to enjoy the benefits of interest and growth and put yourself in an advantageous position when the time finally comes to start paying those tuition bills.
To put you and your child in the best financial position for college, it pays to incorporate some strategies that fall outside of the realm of traditional financial planning as well.
A combination of conventional college financial planning strategies and these other methods should leave you in good shape once freshman year is about to start.
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Start Early
The most important piece of advice when it comes to college financial planning is to get an early start. You want as much growth on your investments as possible over the next 18 years.
The power of interest is very much in your favor here. Delaying a year might not seem like much at the beginning of those 18 years, but the interest from that first year alone can add up to huge sums of money by the time your child is ready to go to college.
Open a 529 Savings Plan
This type of savings account is designed specifically for parents who are saving for their children to attend college. Not only does it give you a vehicle to base some of your college financial planning around, but it offers great tax incentives to make it a favorable option.
Continue the 529 Throughout College
The odds are that your child will attend college for four years or more. This means that you can continue to contribute and enjoy the benefits of a 529 plan throughout their college years. Continue to contribute and use the plan until they’ve graduated.
Avoid Withdrawing from Retirement Savings
When it comes time to pay for college for your child, try to avoid dipping into your retirement funds. In truth, there are numerous sources of funding for your child to access, and all those options should be explored before you start tapping into any retirement savings you’ve accumulated.
Educate Your Child About Money
Tuition is a definable, easy-to-plan-for expense. However, the cost of living, food and other expenses that your child will have while in college are much more flexible. Teaching your child about money from an early age will help them work with you to be financially responsible once their college years start.
Encourage Extra Curricular
There are scholarships out there for a wide variety of extra-curricular activities that might help your child get their own scholarship funding when applying for schools. These activities will also help strengthen an application to any given school.
• Team sports such as football and basketball.
• Individual athletics such as track and golf.
• Journalism.
• Volunteer activities.
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Get the Grades Up
One of the overlooked aspects of college financial planning for your child is the contributions that they can make to the effort.
By putting a focus on grades throughout your child’s high-school academic career, you could help put them into a competitive bracket for scholarships.
The higher your child’s grades, the more options they will have open to them; both in terms of what schools will accept them and how much financial aid in the form of scholarships they may be able to receive from those institutions.
Investing in things like private tutors early on could pay dividends in the form of scholarships down the road.
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Access Government Programs
When you’re starting your college financial planning you should look into both the state and federal programs that are available in your jurisdiction.
If there are means for you to access additional funding to contribute to the educational fund of your child, accessing it as early as possible is advisable.
Avoid High-Risk Investments
This is especially true the closer you get to the time when your child will be attending college.
When you’re planning long term, such as for retirement, a quick dip in the market can be ridden out.
When it comes to a child going to college, however, you have a very specific timeframe in which you need your assets to be intact and accessible.
Lower-risk investments reduce the chance that a market downturn will limit your ability to pay for college.
Invest in Stocks Early
Although you want to minimize the risks the closer you get to your child entering college, investing in the stock market early when saving for college can help you outperform inflation. College tuition costs rise every year, but history shows that the stock market typically outperforms inflation.
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