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When Do You Start Saving for Your Child’s College Fund?

The following guest post was contributed by Elle from CoupleMoney

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When Do You Start Saving for Your Child’s College Fund?

Preparing for the Baby’s College Fund

From time to time, I get feedback from Couple Money readers. It’s something that I enjoy and try to respond to. After my recent post on preparing the baby’s nursery, Becky emailed me a wonderful question on another baby expense parents think about:

“I was wondering if you were going to do a post on how you are preparing for the baby’s future financially (college, etc…) We are expecting in August and are starting to plan for these types of things.

Our biggest worry/concern is starting to act now to plan for college for our child. We really don’t want them to start their adult life with that debt hanging over their head. Any suggestions on that would be awesome.”

I’ll be tackling the how to process in the later post, but I want to start off with an important question – what financial milestones should you have reached as a couple before you start funding your child’s college fund?

I’d love to get your thoughts on it – I’ll share a few that I believe are essential right here.

Be on Solid Financial Ground

I truly believe that before you can help you children financially with an expense like college, you have to have your finances in order. After all you’re trying to help them avoid having a huge debt, so you have to lead by example.

I think that if you have the following 3 factors down, you can help your child without damaging your own financial future.

Emergency Fund Ready

Quite simply if you don’t have an emergency fund and your child in college, you’ve put yourself between a rock and a hard place.

Most financial gurus recommend you have 3-6 months of expenses in savings, but that may not be the right amount for you. If you’re looking for something more specifically tailored to your family’s needs, then there are several factors to consider when determining your emergency fund.

  • Family Size – If you’re a dual income couple with one child and no other family obligations, then you’ll probably won’t need as a big of an emergency fund as a family of 5.
  • Family Expenses – Your family’s lifestyle has a big effect on the size of your emergency fund. If you have high monthly expenses, then logically, you’ll need more money to save.
  • Income Streams – If you have 2 or more income streams coming in, that can decrease the size of your emergency fund. You should still have one though, as unexpected events can happen.

If you’re still unsure than shoot for what makes the more financially conservative of you two comfortable.

Have Your Debt Under Control

My personal preference is having all your non-mortgage debt paid off, but some parents feel uncomfortable with that situation. They may have started late with getting their finances in order and don’t have time to save for college and pay off debt.

If you are in heavy and/or high interest debt, I think that your child’s college fund should be put on the back burner. Instead, look at all your financial aid options, such as grants, scholarships, and work/study opportunities.

For those still determined to help their children, then I’d sit down together and come up with a reasonable amount to cover. You may not be able to handle 100% of tuition, but perhaps you can cover 50%. Your child has options on paying for college that you don’t have when paying down debt.

Here are a few ways they can get a solid education at a cheaper price:

  • Attend a community college
  • Use CLEP and AP courses to reduce credits needed
  • Find scholarships

If you have any other ideas on handling both debt reduction and college savings, please share it in the comments.

Continue your Retirement Investments

Don’t think you’ll be able to fend for yourself later. Many grown children are strugglingwith supporting their parents during retirement while raising their own families. Wall Street Journal ran a piece about it a couple years ago:

About 30 percent of adult children in the United States contribute financially to their parents’ care, according to the Pew Research Center. On average these children pay $2,400 a year on everything from uncovered medical expenses to making sure the refrigerator is stocked each week.

One reason is that with parents living longer their savings may not be adequate. So when you’re looking at how much to retire, skimping on your contributions may backfire for you and your children down the road.

But so often adult children end up ignoring their own savings and retirement accounts or, worse, go into debt, because they’re taking care of their parents, says Tim Casserly, a lawyer in Albany who specializes in issues of elderly care.

Many parents want to do their best to avoid this emotionally and financially draining situation.

Having your retirement contributions automated can certainly help out.

Sacrifice Now or Sacrifice Later

Unless you have a huge amount of money (in which case you already have the money for college saved), you’re going to have to make sacrifices. Your choice as a parent is whether you want it now or later.

Can you cut back on your family’s monthly expenses by 10% now to insure your child(ren)’s college fund grows?

Thoughts on Saving for College

How many of you are starting to save for your child’s college fund? How much do you think should help with college? Next post on this topic will discuss how to determine how much to save for college and what options are available. I’d love to get your thoughts on that as well.

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