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Save early and often.
Start saving the day the baby is born, if not earlier, and save as often as you
can. The sooner you start, the more you can take advantage of compounding to
watch your savings grow. It will also help you get into the habit of saving.
Save as much as you can.
If you don't think you can afford to save, start small. You will find that you
will adjust your spending habits, and can gradually increase the amount you
save. Don't worry too much about starting small, since the compounding of
interest over time will help your savings grow. The first step is to get into
the habit of saving.
Save regularly. Rather
than save money at random intervals, try to save a little every month. The more
frequently you can save the better, but at the very least save once a year. If
you can save with the same frequency as you receive your paycheck, you will find
it easier to get into the habit of saving.
Make saving automatic.
Sign up for payroll deduction or ask your bank to automatically move money from
your checking account to your savings account every month. Many state section
529 plans have options where you can have money transferred from your checking
account every month. If the money isn't in your checking account, you'll be much
less likely to spend it.
Earmark savings for
college. Use a special account designated for college (but in the parents'
name, not the child's). This will help you save, because it will motivate you to
save.
Establish a goal. If
you specify a savings goal, you'll be able to measure your progress toward that
goal.
Invest windfalls, don't
spend them. If you should get a windfall, such as an inheritance, a large income tax refund, or a bonus at work, put it in the
college savings fund. It is better to save than to spend.
Increase the amount you
save each year. Increase the total amount you save each year by at least 5%.
So if you save $100 a month this year, you should save at least $105 a month
next year. This will help your savings keep up with the college tuition
inflation rate (A good rule of thumb is that tuition rates will increase at
about twice the general inflation rate). When you get a raise, increase the
amount of money you save.
Ask relatives to help.
Set up a section 529 plan, and ask relatives (especially the grandparents) to
contribute money to the plan. 60% of grandparents say that they would contribute
to a section 529 plan if asked, especially since they know the money will be
spent on the child's education.
Redirect old regular
payments towards the savings goal. Whenever you have a regular payment that
stops, try shifting the money you were previously paying into college savings.
Since you were already used to spending that amount, saving it should be
relatively painless. For example, when your children enter kindergarten,
redirect the money you were previously spending on daycare to college savings.
Review your living
expenses. Create a monthly budget that reflects your actual spending habits,
and try to identify living expenses you can cut. Any time you cut your expenses,
redirect the money toward savings. For example, if you turn down your thermostat
to save on heating costs, put the money you save in the college savings fund.
Use it as an opportunity
to teach your children. Involve your children in the investment decisions.
Since it involves their future, it is a good opportunity to educate them about
the benefits of saving. For example, you could allow them to manage a small
portion of the investment portfolio and track its growth. Some parents will even
set up a "matching" plan, where money the child saves for their education is
matched by additional money from the parent. Delayed gratification is a hard
concept for younger children (and even some adults) to appreciate, so
encouraging it early will help establish good habits. You will also find that
acting as a role model for your children will make it easier for you to save as
well.
Before you start to save for
your child's college education, get the rest of your finances into good
shape. Pay off your credit cards (and get rid of them if you'll be tempted
to run up the balances again) and maintain a cash reserve equal to six months
salary as a cushion against job loss. Be sure to save for your retirement as
well, maxing out the employer's matching contribution.
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