Saving Money for College

Education financing is a very important topic on the minds of parents. If you have a child, you need to take the right steps in working toward the goal of putting your child through college. The first thing you need to do is determine how much college will probably cost when your child will be attending. Use this number as an inflated figure, because it is possible that your child will receive small scholarships or other types of financial aid, like student loans and grants.

The key is to start saving early. Compound interest can definitely work for you if you begin saving and investing early and allowing the money to work for you so that you do not have to save as much. If you invest $5,000 each year when your child is ten years old in an account that earns 11% annually, you would have a total savings of over $65,000 by the time the child turns 18. The total money invested would be $40,000. If you invest $2,000 per year when your child is eight in an account that earns 11% yearly, you would save over $37,000 by the time the child is 18, and the total money invested would be $20,000. Thus, early investing can really help you and your finances. If you use tax-favored college savings accounts, you can make more money.

Stock funds are another option. Search for no-load mutual funds with low expenses. If you place money in a fund, remember to check on its performance at least once a year, and make changes for under-performing funds. When your child is five years away from going to college, start shifting your money into growth and income stock funds and bond funds. This would reduce your susceptibility to market difficulties. Two to four years before your child starts college, cash in enough bonds and stocks to pay for the first year. Place this money somewhere safe, like in a money market fund. If you wait too long, you may be forced to take it out when market performance is down and lose some earnings.