Spring is in full bloom – tax day has passed and it’s time for your finances to get a fresh start! April is Financial Literacy Month, and as it draws to a close, what’s a more appropriate topic than budgeting for your child’s future?
Becoming a parent brings a lot of new responsibilities and expenses. It’s important to create a plan to balance managing today’s costs with preparing for the future. An often overlooked but sizable expenditure that continues to increase is college tuition. In fact, the price tag of a single year of tuition at a four-year public university is quickly approaching that of a new car!
What debt can cost
As college costs continue to grow, many families turn to financial aid to cover the gap. What many don’t realize is that the average financial aid award is nearly 40% loans (says a report by The College Board) that must be repaid with substantial interest. Further, a recent FICO study finds that the average student loan debt is more than $27,000!
Balance your budget
Putting away as much as possible while your children are young is the most effective way to reduce future student loan debt. Saving for college may require making some tradeoffs, especially on a tight budget, but it doesn’t mean you must sacrifice everything. Finding another $50, $100 or $150 a month can go a long way. Consider the following:
-The average U.S. family spends more than $200 eating out each month. Cut that in half for ten years and you could have over $12,000 to add to your college savings.
Other expenses to look at are monthly cell phone, TV and Internet bills – bundling services can often save you money. And holding off buying that new car for just a couple more years could easily add another few hundred a month. Every little bit can add up to big savings.
‘GET’ ahead on saving
Once you’ve found a way to set some dollars aside, it’s important to find a secure option that maximizes your savings. College-specific savings vehicles called 529 plans are one of the most effective ways to grow those dollars. You may have heard of Washington’s 529 Plan - the Guaranteed Education Tuition (GET) Program. GET is a prepaid college tuition plan that offers the investment security of conventional savings accounts and bonds, but with tax-free growth and the potential for much higher returns.
Here’s an example of the ‘GET advantage’:
-You have a newborn and put $5,000 dollars into a GET account this year. Leave it there for 18 years until she’s ready for college, and that same $5,000 could be worth over $10,600 (60% more than putting that same amount in a conventional savings account)!
Opening a GET account is most rewarding while your children are young. The earlier you start, the more time GET’s steady growth has to add to your account. You can watch the value increase year after year, with no worries about market volatility. While it may require some adjusting to fit into your family’s financial picture, remember the cost and concerns it saves you down the road. So go ahead – take control of future college costs by planning ahead, sticking to a budget and finding options that maximize your investment returns.
GET is Washington’s 529 prepaid college tuition plan, celebrating 15 years of helping families save for their children’s college education. GET accounts are guaranteed by the state of Washington to increase in value along with rising tuition costs, no matter how much they increase.