Not surprisingly, college education expense is rising at a faster rate than the country’s inflation rate. Due to this reason it is very important to plan and prepare a checklist for your child right now even though it seems too early to be planning for college. There is not much time left for your child to walk into University if he/she is already into kindergarten. It is not possible to interpret which college your little one will go to. But it is definitely possible to plan for the future and start saving for their education considering the inflation rates in the coming years.
It’s not just about how much money you have saved for your child’s education, rather it is more about how prepared are you about taking additional expenses in the future. This is by considering the future inflation rates and cost of living. Here are the 5 best steps to be considered for your child’s education planning:
5 Steps for Planning Your Child’s College Education
- Research Future College Costs:
Though colleges might seem affordable, the reality is different. It is true that there are colleges that are affordable and those that are of very high-standard are expensive generally. The judgment will be up to the students and his/her parents to finalize with the right college when it is time for the same. At this stage, finance will be one of the major concern.
If your child is really smart and good at studying, there are chances of getting scholarships for higher education however, when you are planning for the child’s future education, always think of the scenarios that require most of your effort and savings. This way even if your child gets no scholarship, you are on the safe side to provide sufficient fund for higher studies.
- Use Compound Interest:
To play the game safely the best friend is ‘Compound Interest’, this will help you to understand how even a small penny saved can grow to be a huge investment in future. Do this calculation right at the beginning when you decide to start saving for your child’s education. Through this you will be able to find out how much should be invested and what should be the recurrence of investment. Along with this, it is important to create a plan for how you are expecting to save fund from your income for this recurring income.
- Decide what percentage of expense should be the initial requirement:
In most of the case when you are in need of education fund there is lot of options available. It is not practically possible to have all amounts ready in hand for education purpose. Over 70% of parents will consider options of grants and scholarships, educational loans and even work-study. However, a certain percentage amount will still be required as none of the above listed options will grant full fund for the education.
It is safe to save 30% of the total expected expense, thus in case of loan or other alternatives, there will be some cash for purchase of books and for travel expenses while loans and scholarships will take care of the tuition fees and other related expenses.
- Avoid High Risk Investments:
There is a myth that if you are young you can invest in high risk investments, this is not advisable when you have high commitments. Even if you are young as 26 and if you are a father, it is not advisable to pick high risk investment when you are a paycheck-to-paycheck person or when your commitments are huge and long term featured. Plan your future and have a savings plan even for the very little income that you have. At the young age of your child like when he/she is in the elementary school or middle school you can invest in stock market and mutual funds. However as he/she moves to high school commit for low risk investments.
- Access Government Programs:
There are lot of government plans and programs available through which you can start investing for your child’s education. These programs are specific for the educational requirements thus funds will be released only when there is a need for the same. Though the formalities and procedure is little long, the return will be high and it is the most safe way of investing for child’s education.
Having said all these, it is important to have a plan B when it comes to planning and saving for your child’s education. Look into the interest rates and returns available from each investment strategy, choose and pick the best one that is safe and offers higher return on investment.