Essential guide to saving for college: Tips and strategies for parents

Let’s be honest: Saving for college is a big deal. But guess what? It doesn’t have to be stressful! All you need is a strategy and the right tools. With this foundation in place, you can work towards getting your kids' college dreams within reach. 

Every little step counts. The earlier you start saving, the easier it'll be to spread it out over time. Also, consider planning together as a family. This way, you can turn what might feel like a big challenge into a shared adventure for your kids' and teens' future education.

Importance of starting saving early

When you start to save for college early, you let the power of time work for you. With this strategy, your savings continually grow and compound. In finance, "compound" is how the interest you earn on your savings adds to your initial amount. This means you can earn interest on your original investment and the interest that builds up over time. Even small contributions can pile up and ease the financial load when your teen is ready for college. Sit down for a family budgeting session to talk about financial goals and come up with a plan together. 

This approach boosts your kids' financial literacy and can teach them valuable money management skills. Plus, getting them involved in the saving process can help them feel responsible and plan for the future. 

Check out tools like the Greenlight app to help introduce them to savings concepts. This app makes it fun for kids to learn money management by letting them save, spend, and give from their allowance. 

Understanding college expenses and budgeting

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If you want to plan for college expenses effectively, first get a handle on the various fees. 

Tuition and fees

When most people think of the cost of college, the first thing that comes to mind is tuition — and for good reason. 

Tuition and fees are easily the biggest chunk of the college expense pie. Also, they can fluctuate greatly. Public or private, local or out-of-state, Ivy-league or community college — all of these factors impact the price tag.

Room and board

Room and board covers your student's housing and meals while in college. These costs vary substantially depending on where your student will live while attending school. Living on campus is super convenient, but can hit the wallet hard. Off-campus living might save money, but you'll still need to consider other costs like utilities and groceries.  

Books and supplies

Books and materials seem to fall into the category of costs that tend to sneak up on you. A textbook here, some art supplies there, and pretty soon, you've spent far more than you expected. To save some cash in this area, consider renting textbooks or grabbing used ones.

Essential ways to save for college

Setting realistic goals and sticking to a plan can make a big difference.

1. Open a college savings account

Looking to save efficiently for college? Good news — there are some fantastic options for you to explore. Take some notes on the following choices to find the one that could serve your family best.

• 529 College Savings Plans: A go-to choice for many. These savings plans offer tremendous tax benefits (that is, they allow your savings to grow tax-free). However, you must use them for eligible educational expenses. This is a smart way to watch your money flourish.

• Custodial Accounts: UGMAs (Uniform Gifts to Minors Act) and UTMAs (Uniform Transfers to Minors Act). These accounts allow you to transfer assets to your minors. You can use them for a variety of purposes, including education. Keep in mind, though, that these accounts are taxable, unlike a 529 plan or ESA.

• Education Savings Accounts: These include Coverdell ESAs, and, like 529 plans, they permit tax-free growth. You can use them for both K through 12 and college expenses. Contributions to Coverdell ESAs are capped at $2,000 per year, so take care to plan accordingly.

2. Apply for financial aid and scholarships

Always check out financial aid and scholarships. The best part? Most of these opportunities are free to apply for. You really have nothing to lose.

If you fill out only one form for your college student, make it the Free Application for Federal Student Aid (FAFSA). This form makes it simple to see your child’s financial aid eligibility. Whatever you do, don't let the fear of your student not being accepted hold you back. It's always worth a shot, as you never know what kind of support your child might receive.

And don't forget to look into scholarships. Many organizations offer them based on things like academic achievements, extracurricular activities, or financial need. Your child’s school's financial aid office can be a great resource for this.

3. Set up automatic deposits

For a set-it-and-forget-it option, consider automatic contributions to your college savings account. Chances are you can easily set up automatic deposits with your bank or workplace. In fact, several employers allow you to divide your direct deposit between different accounts, making it simple to allocate a portion of your income toward a college fund.

4. Start investing

Investing for college can help your money grow more quickly. Investigate mutual funds, equities, and bonds, and don't forget to diversify your portfolio. 

Remember, when it comes to investment strategies, it’s helpful to understand your risk tolerance. While stocks can provide bigger profits, they come with more risk. On the other hand, bonds and mutual funds tend to be safer bets but might provide lower returns. 

Start realistic goals with Greenlight

Setting realistic savings goals is the most important factor for ongoing success. Greenlight's app is here with handy tools to track progress, set goals, and tweak things as needed.

Set achievable goals to stay motivated and focused. But don't forget to celebrate those milestones along the way!

Ready to take the next step? Sign up for Greenlight today, and let's start your savings journey.

FAQ

The following are common questions about saving money for a child’s college education:

What is the best age to save money?

There's really no "too early" when it comes to saving for kids' college education. Some parents even begin before their babies are born, allowing more time for savings options to grow and taking advantage of compound interest. But if you haven't started yet, don't stress! Truly, anytime is a good time to begin. The most important step is starting now and continuing to contribute consistently, no matter your child’s age.

What is the best savings plan for college?

The real answer? It depends. Many people are attracted to a 529 plan because of its tax advantages and flexibility. But don’t hesitate to explore the other options mentioned. Do your homework to find what works for your family's financial situation and goals.