Creating a financial plan is often seen as a self-indulgent act, but the act can be quite misunderstood. Sometimes, trying to attain some financial security isn’t just for that one person but also the beneficiaries and people that they love. For parents, that’s certainly their children.
One of the biggest challenges that your child will surely face as they graduate from high school is making that transition into college. So many questions will run through their mind, from what college course they’ll want to take to how they will be able to cover the costs. Student loans can be quite the dilemma, and you want to help them prepare in every way you can.
Starting a savings plan at a young age for your child’s college education is a great way to prepare. A financial planning professional can help you map out a plan. Here are a few steps to keep in mind during the process.
Increase Your Savings
Although you may already have a savings account prepared, it’s better not to underestimate the expenses. Prepare for the worst-case scenarios by having a dedicated savings account for your child. There are various ways to maximize your savings. One is to simply set up an automatic draft into a separate bank savings account each time you’re paid.
As a general rule, parents are encouraged to calculate their savings goal by multiplying their child’s age by $2,000. However, each person’s financial circumstances are different. Be sure to coordinate with your financial planner to understand what’s the best way to optimize and increase your savings.
Encourage AP Classes
Advanced placements or AP classes are available all throughout high school. These extra classes can be applied as credit for certain subjects in college, depending on the accreditation and terms in place.
Although AP Classes will entail additional coursework, it can be a very effective way of shaving off some of the expenses in college as your child won’t be required to take them in college. Guide your child on taking at least one or two in order to reduce the total cost of college.
Establish a 529 Plan
Taxes can be difficult to deal with as it affects the overall outcome of your savings. However, using a 529 plan, an investment savings account, will allow you to reap a number of tax advantages. For one, any money withdrawn and used for tuition will not be taxable.
Request this from your financial planner. If you want to explore other options, setting up an educational savings account or education IRA can work too. They provide the same perks where money won’t be taxable if it’s used for educational purposes.
Have a Conversation with Your Child
It’s never too early to start teaching your child about money. As silly as it may sound, there are basic concepts around money that you can start teaching at the age of three or even earlier.
When your child is mature enough though, sit down with them and explain the savings plan that you set up for them. Inform them of how they should manage and use the funds that you’ve created for them. Set up some ground rules, such as how they should create their own savings account or utilize the money solely for educational purposes.
Even if the future is far off and your children are only five years old or so, keep in mind that you won’t be working forever. At a certain point, you’ll need to retire and lose your main source of income. It’s best to be prepared and help your child however you can.
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