You might have started thinking about how you are going to pay for your child’s education. Higher education is an important and expensive investment. Allstate wants to help customers prepare for their child’s future without the stress of waiting until the last minute.
According to the College Savings Plans Network, the cost of attending college is increasing about twice as much as inflation each year.
If you did not start a 529 plan when your kids were born, there is still hope. With strategic planning and a lot of dedication, you can provide for your kids so they can avoid facing substantial debt after they finish college.
There are a few questions you should ask yourself:
How much will my child need?
There are tools available to help get an estimate. CNN Money’s helpful tool, “How much will that college really cost?,” allows users to search annual tuition rates by college name or state. Then, FinAid’s college cost projector allows you to enter the current one-year cost of attending the school of choice and takes
both rising tuition and inflation into account to provide you with one, two, three and four-year total projected costs.
How do I start saving?
FinAid recommends a one-third rule. Aim to put away about one-third of each child’s college costs in savings.
Once college starts, you and your family can use one-third from savings, pay one-third out-of-pocket and borrow the last third. FinAid suggests putting this plan into action by setting aside 10 percent of your salary from the day your child is born.
One way to start saving is to consider a 529 plan for each child. The Internal Revenue Service explains that 529 plans allow you to contribute part of your income without it being subjected to income tax, as long as the money is being used for qualified education expenses.
How much will my savings yield?
After calculating how much to save, think about how much your savings will yield.
For example, FinAid calculates that setting aside $100 a month from birth to age 17 at a 5 percent interest rate will yield $139,358. Saving $100 a month for the same period with no interest yields $88,400.
Talking to a financial advisor can help you determine which options best fit your needs.
It is never too late to start saving for your child’s education. Take the time to educate yourself on your options now so you can make the best decision for your family’s future.
—Submitted by Allstate Insurance