College is an enormous financial burden on families, but it is still a good investment. Most well-paying jobs of the future are going to require a college degree at a minimum. If parents or grandparents can afford to save in advance for college, the following tips should help.
- Don’t try to save all of it. Don’t even think about trying to save every cent that it’s going to cost to educate your abecedarian. It will almost certainly require putting aside more money than you can afford. If you set your college savings goal too high, you may become discouraged and not save at all. Instead, plan on setting aside an amount that you can reasonably afford – perhaps enough to cover one-third of the cost.
- Keep saving for retirement. Don’t begin saving for college unless you can at the same time keep up with your retirement plan contributions, including an IRA. In other words, don’t reduce your retirement savings in order to save for college. While it’s great to get a head start on tuition costs, it’s more important (and more financially advantageous) to put money away in retirement plans.
- 529 plans are preferable. Unless the child is very near college age, a 529 college savings plan is probably the best savings alternative. It is certainly the most tax advantageous. Choose carefully. There are some wonderful 529 plans, but there are also some stinkers that assess high fees and provide lackluster investment choices. Every state offers at least one plan, and your own state’s plan may – or may not – be a good choice. If you’re comfortable making your own decision, select a 529 plan on your own. Some online sites can help identify the top choices. This will probably save you money compared with asking a financial advisor for help.
- Opt for age-based investing. Unless you’d really prefer to select your own investments in the plan and otherwise move money around, choose instead the “age-based” 529 plan investment alternative(s). The age-based option will automatically but gradually change the investment mix as the pupil nears college age. The younger the child, the higher the percentage of money in the plan that will be invested in stocks. As the child nears college age, the percentage allocated to stocks will gradually be reduced, which makes a lot of sense because the last thing you want is to lose a lot of money from a stock market tumble just before tuition bills arrive. The age-based approach takes the worry out of having to ride herd on the investments, one less matter on your financial worry list.
Smart Money Tips
- Don’t be intimidated by the financial services industry. I hope you understand from reading my missives that investing and personal financial planning are not terribly complicated unless your financial situation is particularly complex. This, despite yeomen’s efforts by the financial services industry to convince the masses that they are simply too uninformed to be trusted with their own money. That’s nonsense. But you do need to devote some time to learning about and keeping up to date with personal financial matters. There’s nothing wrong with seeking professional help when needed, but the better informed you are, the better able you will be to benefit from working with an investment advisor or financial planner.
- Don’t buy extended warranty contracts. It seems that the retailers offer service contracts on just about anything you buy. While the contracts may seem inexpensive, they’re probably just a waste of money. Better to decline and take your chances. Even contracts on electronic equipment are considered a waste of money. Don’t be surprised, though, if you get a sales pitch because these plans are hugely profitable to those who sell them.
Food for Thought
Happy are those who dream dreams and are ready to pay the price to make them come true. -Cardinal Leo Joseph Suenens
Money Can Be Funny
Except for excess decoration, excess commercialism, excess editorializing, excess caroling, excess bibbling, and excess cheer, I heartily approve of the Christmas spirit.
-William Feather
Word of the Week
mamihlapinatapai (mah-mee-lah-pin-yah-tah-pie) – A look shared by two people, each wishing the other will offer something that they both desire but are unwilling to suggest or offer themselves.
Origin: Derived from the Yaghan language of Tierra del Fuego. Considered to be the world’s most succinct word as well as one of the hardest words to translate.
The painfully shy pair were each anxious to strike up a conversation, but as they occasionally glanced at each other across the room, it was apparent the mamihlapinatapai had yet again usurped their inclinations.