Saving for college is similar to saving for other expenses. You should always plan ahead and adjust your saving strategy depending on the key factors: income, return on savings, cost of schooling. Below are some key points I consider crucial to saving for rising college tuition costs:
Start Saving Early: If you invest $10,000 for 10 years at 7% interest per year, you will end up with around $20,137 dollars. However, if you invest the same amount of money at the same rate for 20 years, you will earn around $40,275, doubling your available cash on hand.
Avoid Unwise Debts: Just as compounded interest on your savings can drastically increase your savings, compounded interest on your debt can quickly make your debt unmanageable. With credit card interest rates averaging around 15% nowadays, it often takes less than 5 years to double your debt amount. For more information, consult the debt management section.
Invest Your Money Wisely: As tuition costs are rising faster than the pace of inflation, merely saving for your child’s college tuition may not be enough. Therefore, you should invest in stocks, bonds, money markets, and other investment vehicles to keep pace with rising tuition. However, keep in mind that investments are inherently volatile and returns are not guaranteed, so use with caution, or…
Seek Professional Management of Your Investments: Both traditional mutual funds and new consumer innovations such as ETF funds puts your money in the hands of professional investors so you don’t have to divert additional time to researching the stock market. However, still keep an eye on how your portfolio is doing, and don’t be afraid to seek the best long-term mutual fund managers out- the best performing manager this quarter may very well be the worst next quarter.
Consider a College’s Financial Aid Before Applying: Sometimes sticker shock can discourage college applicants from applying to “pricier” colleges. However, many universities, especially private universities with large endowments, offer financial aid for students to reduce their costs. For example, the average financial aid package for Ivy League schools ranges from $30,000 to a hefty $40,000 per student.
Research and Apply for Scholarships: Believe it or not, not all scholarships only go to the super-talented people. In fact, many of them have only a few applicants applying. The more scholarships you apply for, the more free money you’ll get for college.
