Getting ready to bring home a new baby is a special time for a growing family. Parents work hard to ensure they have everything in order for the big day, from baby-proofing the house and setting up the crib to stocking up on diapers and pacifiers.
It’s also important that parents think beyond the first few months and years and begin planning for their baby’s future. College can be pretty expensive, with many of today’s graduates entering the workforce with thousands of dollars in debt. Needless to say, many parents want to ease this burden by beginning to save early.
Retirement vs. College Savings
Parents who hope to aid in their children’s future financial stability should broaden their thinking beyond college costs. NerdWallet explained that it’s just as important, if not more so, to plan and save for your own retirement first. Look at it this way: There are plenty of options to pay for college. Savings, loans and scholarships are the three most typical methods of this. Retirement, on the other hand, can only be paid for through savings, continued employment and Social Security checks.
Furthermore, a child whose parent is in debt will likely take on some of the responsibilities themselves. By ensuring you are all set for retirement, you are protecting your child from becoming your financial caregiver.
“You can transfer a 529 college savings account to anyone in your family without penalty.”
529 College Savings Accounts
Once you’re on the right path for providing yourself with a financially sound retirement, you should begin saving for your child’s education as soon as possible. One popular way is through a 529 college savings account. U.S. News & World Report explained that different states’ 529 plans may vary, so it’s important to do some research to decide which state offers a plan you like best. There are several advantages to 529 plans including:
- Earnings that aren’t subject to federal taxes
- Prepaying for college to take advantage of today’s tuition rates (the downside to this is that the child would have to attend the college you chose)
- The ability to begin saving for your child before he or she is even born
- The ability to transfer a 529 college savings account to anyone in your family without penalty
Enlist Your Child’s Help
When babies are just learning how to crawl, they certainly aren’t earning money on their own. However, as they get older, they will begin thinking about getting their first jobs. When they reach this point, they should also be thinking about their future.
U.S. News & World Report suggested helping your child start thinking about college and how to save for it. Paychecks from their summer job can be broken up for various purposes, like gas and entertainment money and long-term savings goals. This will not only help with the expenses but also teach them the importance of thinking about and planning for the future.
“This approach will help in both budgeting and establishing a good practice that will help the student prioritize and prepare them to manage income and expenses throughout their lives,” explained George Walter, vice president for enrollment services at La Salle University in Philadelphia, according to U.S. News & World Report. “Even in the summer between graduation and first semester in college, this practice can result in a student saving enough to pay for their books and supplies for the first year.”