When and how to start saving for your child's college education


Robyn Parets

Robyn Parets

Blog author Robyn Parets

Robyn Parets is a personal finance and business writer based in Boston. A former writer for Investor's Business Daily (IBD) and NerdWallet, Robyn is also the founder and owner of Pretzel Kids, a children's fitness brand and online training course. You can find her on Twitter @RobynParets.

Published June 10, 2016|3 min read

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When you’ve welcomed your new baby home, your days and nights run together as you focus on feeding your newborn, changing diapers and if you’re lucky — squeezing in a bit of sleep for yourself. It’s also the beginning of a whole new set of financial considerations. Even though your baby isn’t even walking, you may already be thinking about how you’re going to pay for college. This brings us to an important question: When should you start saving for Junior’s college education?The easy answer is: Right now. The more realistic answer is: Get your own financial house in order first and then starting saving for your baby. Here are three key financial steps you should take before earmarking money for Junior’s college fund:

1. Save for your own retirement

Yup. It’s more important than immediately saving for your child’s college education. Why? Because you generally won’t have to shoulder the entire cost of college. Your retirement is a whole different story as your retirement fund might be all you have to fall back on to pay for your living expenses.

2. Start an emergency fund

Generally speaking, it’s a good idea to save about six to twelve months of your income in a savings account if you’re the sole earner in the family. If you and your partner are both working, three to six months is a good goal, according to Kimberly Howard, a financial planner at KJH Financial Services in Newton, Massachusetts and Denver, Colorado. This isn’t always easy, especially with a newborn and all of the associated expenses. This is why it’s important to start earmarking money into a rainy day fund sooner rather than later. You will be thankful for that emergency fund if you lose your job, need to move into a new home, or have to deal with an unexpected home repair.

3. Start paying off your own debt

This includes student loans and credit cards. By doing so, this will free up more of your money to put away for college.

When and how to start saving for a college education

Once you’ve started improving your own financial affairs, it’s time to start a college savings fund for your baby. The earlier you start, the more Junior will have available for college. Here are three tips to help you get going:

1. Open a 529 plan

This is often considered the best type of college savings plan as it allows you to save tax-free money for Junior’s college costs. If he doesn’t end up using the 529 funds for college, you can still use it to pay for educational costs for any of Junior’s future siblings or other relatives.

2. Ask relatives to pitch in

Once you’ve got a college fund open, don’t be bashful about asking grandparents, aunts, uncles or even friends to contribute money into the account in lieu of other types of gifts. When you have a newborn, it can be difficult to save and relatives and friends are often eager to help.

3. Don't think too much about the end goal

Don’t get caught up thinking about the high cost of a private college education — 18 years down the line. Also, don’t fret about saving hundreds of dollars a month to foot this future astronomical bill. In 18 years, four years of an elite private college education will cost $438,000, according to The College Board calculations. This was based on an average private four-year college tuition cost of $42,224 today, rising at 5% a year to $101,617 in 2034.Instead of worrying, be proactive by starting small and saving whatever you can, like $10 a week or $50 a month. Even small amounts add up quickly, thanks to compounding interest. It’s also a good idea to remember that Junior is only a newborn and you don’t know what his future will hold when he’s 18. Assuming he goes to college, he may opt for a more affordable public school or have other college financing avenues available to him. This is the time to enjoy your newborn and take baby steps toward saving for college.

Image: Gettysburg College