3 Biggest Mistakes Parents Make When Saving for Education
Providing education for your children is the core value of many families. We want to launch our children equipped with the best skills to face adult life. But for many families, it is still a challenge financially, emotionally & practically. I would like to point out a few loopholes parents need to be on the lookout for.
Not Starting to Save Early Enough
Time is on your side. The earlier parents start the better. The amount you have to save is less and more manageable for your budget. For example if you are saving for state schools like one of the UCs in CA, US Santa Barbara, US Santa Cruise which cost about $32,000 per year and you start when your child is just born, and you hope that they will get a scholarship and your final cost will be $25,000 per year. You will have to save $735 per month when they are just born and if you wait 5 years, you will have to save $1,200 per month until they start the 1st year in college. WOW!
Not Saving at All
Hoping for some miracle. We see a lot of families who come to us when their children are 8 or 10 or 14 and start looking for solutions. There are definitely strategies to come up with at the time, but it’s much more costly. A lot of families have to borrow and it comes at the cost of delaying retirement and for students having student loans after graduation.
Playing it too Safe (Improper Investments)
We see this all the time. According to Sallie May 2015 report “How America Saves for College”, the majority of US families invest in low-risk, low return options like savings accounts, CDs and money markets that pay barely 0.5% per year. In comparison, the cost of college is increasing at 6% per year. Many college savings plan these days offer Age-based options. For example, if your child is 5, you have 13 years to go. Select a portfolio that has a target date of maturity of 2032. That will provide proper recipe or allocation of stocks vs. bonds to help grow your money.
No matter where you are on this journey! The best move you can make right now is “Just Start”. Also, don’t forget next time you having a birthday party or Christmas, ask your friends and family not to buy any more toys, but rather make a contribution to a college savings fund. This will go a long way!!!