Whether you have a newborn or a teen in high school, it is never too late to begin saving for their college education. College financial planning is best done early, but it’s better late than never. There are a few common mistakes many parents make, so avoiding these can help you ensure you set aside funds appropriately.
Not Starting Early Enough
One of the biggest mistakes you can make when it comes to college savings is not setting enough aside early enough. If you start saving when they are born, you will have about 18 years, but if you wait until they are in elementary or middle school, you may have significantly less time than that. Every year you wait to save means you need to put even more aside because you won’t be able to take advantage of compound interest. It’s a good idea to calculate what future costs might look like and come up with a monthly goal from there. One way of reducing your monthly expenses to make your savings goal more attainable is by refinancing your own student loan debt, getting a new loan and understanding the concept of multi-generational wealth planning. When you refinance student loans with NaviRefi, you’ll be better prepared to help your own child get ready for college.
Not Using the Right Types of Savings Accounts
Many students afford college without parental help but if you want to help ease that burden, be smart with your money. You can set funds aside in nearly any kind of account and call it your college fund, but that doesn’t mean you should pick just any type of account. Not every account is created equal. Certain types of mutual funds may be taxed at higher rates than other account types. Choosing the right account starts with you doing your research. You’ll need to understand what the different accounts are used for and how their features can be used to your advantage. You can then use that information to determine which type will suit your needs.
Using Your Own Retirement Savings
Using your own retirement savings to help your kids pay for school is another common mistake. It’s a bad idea to take early distributions and loans from your accounts, even if it prevents your child from having to take out student loans. Many parents are also tempted to stop saving for retirement as they focus on their child’s college fund. Once you have saved for your child’s education, you may not have much time to make up the difference before it’s time to retire. It’s easier for children to get student loans than for you to get monetary help during your retirement years.
Underestimating Inflation
College is only getting more expensive each year, and you may find it hard to plan so far ahead of time when you don’t know how much it will cost. Of course, the cost of living has gone up substantially, but college costs often increase at a higher rate than the cost of living. That’s why it’s so important to understand investment types, and you’ll need to use accounts that help you combat the effects of inflation.
