I’ve started accepting guest post every first and third Wednesday of the month! Today’s featured blogger is Amy Nickson. You may have seen her work on several other blogs!
How parent can fund your child’s education without incurring debt?
The sad reality is that many parents put their dreams on hold to save money for their child’s college education.
Most parents think that sending their children to college is more important than saving for their retirement days. Some feel that one should put saving for retirement before anything else, as their retirement fund is essential for them when they lack the ability to work on their own. However, when parents incur debt in the latter half of their life, they may not get enough support to get rid of that debt.
If you have a child, you need to fund college cost and you also need to save for your future. But the million dollar question is; how can you successfully manage your child’s education cost while giving debt a miss?
How to Fund Your Child’s Education without Debt.
Determine your expenses
To create a budget, you must determine an amount you need to spend for your child’s education. But, at first, you need to choose a college you would like to send your child.
Thus, you’ll understand the total amount you need to spend on tuition cost, boarding, textbooks, supplies, and extracurricular, activities etc.
Formulate a budget
Formulating a budget is important, but it can be a bit tricky for parents who are funding their child’s education. You have to consider other accounts like IRA (k), 529 savings account, and emergency fund while creating the budget. Try to deduct all expenses from your total income to understand how much money left for other expenses. Make sure you exclude all unnecessary expenses; otherwise you won’t be able to follow your budget.
Be an early bird
Start saving for your kid’s education as early as possible. The price of commodities, the education fees, and the tuition costs are rising fast. So, if you want to prepare yourself for paying your kid’s college fees, then you have to start saving money just after the birth of the child. Thus, you can have enough money in your bank account to fund your kid’s education.
Analyze the EFC
You need to analyze the exact Expected Family Contribution (EFC) that you’re supposed to make towards your child’s college education costs. This is often determined by the Federal Government based on all the information you provided in the Free Application for the Federal Student Aid (FAFSA). You have to provide information about your income, net worth, assets and child’s education costs. All such information can deduce the amount that you can contribute towards your child’s education. The lower EFC you can show, the better grant your kid will receive.
Let your child get involved
You must involve your kids in this matter. If your income is low to cover the cost of a private college, then talk to your child regarding the matter. Don’t borrow money beyond your affordability; otherwise, you’ll suffer during retirement. Ask your child to join a part-time job. If the child chooses a college beyond his means, then he has to take responsibility for its funding.
Take advantage of 401 (K) offered by your employer
If your company offers a 401(k) savings plan, then take advantage of it. Thus you can grow money tax-free. You can get more advantage of free money if your employer offers a dollar-for-dollar percentage match.
Suppose you’re earning $1,000 per week and your company is offering a 5% dollar-for- dollar match.
If you’re contributing 60% of your weekly gross income into your 401(k), then your company needs to deposit an additional 60% into your account, which means you’re saving nearly $3000 free money into your retirement account in a year.
Review your life insurance policy
Some people pay more than what they need on their life insurance policies. Thus, a large part of the monthly income goes towards the life insurance premiums. If you’re one of them, then review your life insurance policy instead of wasting money on an unnecessary coverage. You can save money toward your retirement fund or child’s college fund.
Try to automate your savings
Once you automate your savings, a portion of your paycheck will save in your accounts automatically every month. Thus, you’ll be able to save money even on a tight budget.
Open a 529 savings plan
529 savings plan allows you to save tax-free money for your child’s higher education. Ask your family members to contribute to 527 accounts instead of wasting money on expensive gifts.
Seek professional help
Sometimes you may get confused about your priorities in life. Being a parent, you always want to pay for your child’s higher education. But you shouldn’t ignore your financial future. If you’re not getting answers yourself, then you can talk to a financial advisor for help. An advisor can tell you how to save for your child besides your retirement account.
Remember, stealing money from the retirement account is a big No-no. Taking money out of your savings dedicated for future is a big mistake. Remember, retirement savings is a necessity. Your child’s education cost will be managed with your help or without your help. Don’t feel ashamed if you’re unable to fund your child’s education. There are many options for your child but fewer options for you when you’re unable to work even.
Finally, federal financial aid provided by the schools are the right options for struggling parents who want to protect their child from the vicious cycle of student loan debt. Browse online to find out more information. If you still want to take out student loan debt, then talk to a financial advisor to know the best option suitable for your financial situation.
Amy Nickson is a web enthusiast. She is associated with ovlg.com where she shares her expertise through her crisp and well researched articles based on money management, money saving ideas, debt and so on.