You’re reading this article because you have someone special you would like to help through college. We all know savings and investment decisions can be mind numbing, especially for those of us who don’t exactly enjoy figuring out finances; however, saving for college (or any other goal) is within anyone’s reach. Here we will set out a four-week action plan you can follow, math included! The key here is to set realistic goals, take small steps, and don’t procrastinate.
Define what saving for college means to you.
Do you want to pay all expenses at a top private school or only some of the expense? What about saving for a state college? If you know which type of school you need to save for, you can let the expected tuition costs drive the amount you save per month. If you’re like many people, you just want to find something to put away -- whether it’s a large amount or small, start now. At a minimum, answer the following:
- Realistically, how much can I put away each month starting right now?
No matter what amount you start with, consider ways to increase your monthly contribution at least yearly (for example an extra $25 to $30 per year).
Next, determine how much time you have to save. The child’s age will drive the answer to this question. Start early because, as you will see, money can grow if given enough time. Bottom line:
- When do you expect that special someone to start and finish college?
Weeks Two and Three
Choose an investment.
Well, week one wasn’t too bad, Remember to take small, manageable steps. Before your special someone can do his or her homework, you have to do yours. Over the next two weeks you should decide what investment options fit your preferences.
You need to find at least one investment option that you can understand and invest in regularly. There are thousands of books on investments, and we certainly cannot cover everything here, so let's address the basics.
To get started, remember that the greater the risk, the greater the potential reward; that is, if you are willing to take more risk with your money, the more investment returns you may or may not receive.
For example, a savings account is considered low risk. You put your money in the bank account, and the Federal Deposit Insurance Corporation insures the account up to $100,000 should the bank be unable to pay you back. The rate of interest paid by the bank is typically considered low. In fact, the savings account interest rate is probably lower than the rate of increase college expenses are expected to rise.
On the other hand, any hyped-up, high-flying stock could bring you double digit investment returns, but there’s no telling if the company will be around next week for you to cash the stock out and pay tuition. Keep in mind that the younger the child, the more risk you may want to consider because you will have more time to ride out market fluctuations.