Saving for college can be stressful for so many people, and often it can start before you are even born.
When you start thinking about college, one of the first things to ask is if your parents already have some funds saved for it. They may have opened something called a 529 plan that you can use to go to college. This is a plan that allows them to save tax-free while their child (you) grows up.
The best news is, if they haven’t set you up an account for you, you can easily set this up yourself. It’s not too late!
When to Start Saving For College?
Timing is different for everyone, but the great thing about using a 529 plan is that you can start out small and save as little or as much as you want. The initial contribution only needs to be $25 and then $15 per month afterward. It may be a good idea to contribute small amounts now and then work your way up to a larger amount when you can afford it.
Many parents plan to start saving once they have a child, but this can also be set up before parents plan to have children. Instead of rushing to find loans, this can be a good way to save money and have a good chunk to easily get through the first few years. If you are setting it up for yourself there is no age limit or minimum for setting up this plan. You can set it up as soon as you want to start saving money.
How Much to Save for College?
There is never a good answer for how much you should save for college. Community college in your neighborhood will be much more budget-friendly than the state university miles away. So, how much should you actually save?
Ultimately, the more you’re able to save, the better. First, look at your current finances – how much can you afford to put aside? Start with that amount, and when you become more financially stable, start saving more.
Many universities cost around $20,000 per year or more. If you can figure out how to save up for half of the time the kids plan to go to college, this will take a huge financial burden off of the family. You don’t have to be able to save the total amount to get started.
Be sure to set affordable goals. Think about how much you spend, if you are going to apply for scholarships, and if you are going in-state. However, don’t forget about your regular budget. If saving money back for college means sacrificing your current bills and resulting in more debt, it may not be the right time to start.
Other Ways to Save for College
Even if you already have a 529 plan, there are so many more ways to save for college!
First, if you don’t already have one, start a savings account. If you are currently working and collecting a paycheck, start by putting aside $20 from each check. It doesn’t seem like a lot, but if you get paid weekly and set aside $25 per check, it adds up to $100 per month and $1,200 per year. That can be enough to cover some basic school supplies and books for at least one year.
If you aren’t convinced you can make enough money at your job and you want to work to save more, consider side hustles like ridesharing and dog walking! If you take on another part-time job or a side hustle, you can even decide that all the money you make from your side hustle can only be used for your college fund.
Automate Your Savings
Many bank accounts will have a way for you to automate your savings. You can easily transfer funds back and forth from checking to savings accounts. For example, you can set it up to automatically transfer $25 from your checking account twice per month so that you don’t even have to think about saving portions of your paycheck. This may seem like a small step, but it can make a huge impact.
Types of Savings Accounts for College
If you don’t want to open a 529 plan, there are many more saving accounts to choose from that can be used for different things. They can be used for education, homes, and anything else that you or your child might need:
Custodial Accounts: usually used so that parents can save money for minors, since minors are not able to invest on their own. Custodial accounts typically are not very limited, and withdrawals are tax-free. You can put in as little or as much as you want.
Traditional Savings Account: anyone over the age of 18 can set up a savings account through a traditional bank. These accounts can be used for anything you want without limitation. If you want to be able to withdraw from your savings account at any time, this is a good way to go.
529 Plan: the main difference between a 529 and other savings account options is that a 529 will come with tax benefits.
How to Find Scholarships
Even if you save for your whole life, college is expensive! Scholarships can help cover those additional costs that you might not have saved for. Additionally, if you get a big enough scholarship, you might be able to use that for school and then use the money you saved for something else (like an emergency fund or debt payoff).
There are now many ways to find scholarships online, through websites like scholarships.com, collegeboard.org, and more. If you are already attending college, a school advisor can point you in the right direction. Scholarships and grants can help you save money and get schooling costs covered. Many scholarships are free to apply for, so it doesn’t hurt to use your free time applying for as many as possible!