As one of the biggest financial burdens for American families, saving early for college is becoming increasingly more important, and unfortunately, more difficult. While some families get a head start, many others become overwhelmed with the increasing costs and find it near impossible to save for their children’s higher education. With a financial planner, you can begin saving for college and avoid these top mistakes that many parents make when saving for their children’s college expenses.
It is recommended to begin saving for your children’s college expenses as soon as they are born (or even as soon as they are conceived). Many parents make the mistake of waiting until their children are in junior high, or later, and then come to realize that their savings plan will not cover the ever-growing costs of higher education. Investing in your children’s college funds early will help increase the return opportunity and save you stress down the road.
Not taking advantage of a 529 account
Exempt from federal taxes, a 529 plan is one of the best ways to invest in your child’s college education without facing heavy tax deductions. Depending on your state, you may qualify for additional tax incentives. One lesser known benefit of opening a 529 account is that it can be opened in any state. Some states may have lower fees or more added benefits than others, including your home state. Check out this 529 planning map to see how your state measures up, and contact Santiago Orchard to begin planning your child’s 529 account with one of our financial advisors.
Using a retirement fund to help cover the cost of college
As the cost of higher education continues to rise every year, it can be easy to see those rising costs and feel it necessary to put all extra income toward those expenses. While focusing on paying for college is important, remember that you can find loans to pay for college, but not for retirement. Avoid withdrawing money from your 401(k) to help pay college costs. Instead, take advantage of a 529 account or even an IRA as a secondary source for college expenses.
Neither of these two financial responsibilities should be placed on the back-burner, but as a parent, we understand it is easy to put your child’s needs first before your own. At Santiago Orchard, we can help you prepare to pay for both higher education for your kids and retirement for yourself.
Using money from the college account to pay for other expenses
We understand, college accounts (hopefully) have large amounts of money inside. That stare at you for years. With your children not attending college for years down the road, those sitting funds begin looking very appealing when house renovations or repairs on the family car start becoming necessary. But one of the biggest mistakes parents make when saving for college is spending that money on, well, not college. That saved money seems like a lot when your child will not be attending college for another decade, but when the time comes and the college bills begin to roll in, we can bet that you will wish you had that extra money available in the account.
Relying on potential scholarships to cover college costs
It is never bad to be too careful. By overestimating the total cost of your children’s college expenses, you’ll (hopefully) save yourself worry and stress down the road. Instead of relying on scholarships to cover expenses, and being disappointed later on when your family needs to take out loans to cover those expenses, start saving as early as possible. It is better to save now than have to pay off loans later, or even worse, cause your children to take on the ever-amounting debt from college loans as soon as they graduate college.
On the other hand, not applying to scholarships
Many universities and institutions offer financial aid, either in the form of scholarships, loans, or grants. This can often be a useful way to cut down on some of the expenses of college by utilizing your child’s grades, activities, and honors from high school. Some institutions may not offer as generous of financial aid as others, however, in which case websites like Fastweb and CollegeBoard offer helpful alternatives through extensive searches for college scholarships. These websites offer information on thousands of scholarships for students, usually dependent upon specific requirements and characteristics. It is never too late to apply to these scholarships and help cut down on college expenses!
Avoid putting college savings on the back-burner and begin saving for the future today. And if you already have kids but have not started saving for their college funds, this article can help you figure out the best plan of action to start saving for future educational expenses. Santiago Orchard can help make sure your family is on the right financial track for saving money and sending your children to college. Contact us today for a free consultation and begin planning the best route to saving for your child’s educational future.