We didn’t start saving for our daughter’s college education until after she was born. That was a mistake.
As I wrote in a hint on three creative strategies for saving extra money, the government estimates that raising a kid for the next 17 years now costs roughly $241,080, and this figure only includes basic necessities like food, shelter and child care. Meanwhile, according to BabyCenter’s 2013 Cost of Raising a Child report, parents spend about $13,000 on average per year on their kids.
Add in what higher education (another skyrocketing expensive) is expected to cost 18 years from now, and you’re looking at needing about another $250,000 to $500,000 above the government estimate to raise a child, depending on what kind of college your child attends.
That’s why today’s hint is to begin saving for college as soon as you know you’re going to have a kid, or another kid. As I mention today on the site Well Rounded NY in a piece on preparing wallets for pending bundles of joy, assuming you’ve already paid off any debt and are saving for retirement, you may want to consider starting to save for child-related expenses, and for college, even before your child is born.
As soon as you start saving for college, you can potentially begin benefiting from a nice thing called compound interest. In other words, the sooner you start saving, the more time your money has to grow. By not starting our college saving nest egg until a few months after our daughter’s birth, my husband and I missed out on potentially getting this benefit sooner.
And here’s more good news: You can open up a tax-advantaged 529 college savings account for your child even before your child is born. That’s because you could open it up for yourself and then change the beneficiary to your child after he or she is born (and has a social security number).
But if you don’t want to deal with the headache and extra to-do list entry of a beneficiary transfer, you can just start socking money away in any old savings vehicle. Or you could go a step further and consider registering for 529 donations (i.e. asking for college-fund donations instead of, or in addition to, traditional baby gifts), a great idea from Ron Lieber of The New York Times. As he pointed out, services like GradSave and Ugift will allow you to set up an account where friends and family can donate money for your child’s future education, whether before or after birth.
What are your tips for saving for college? Share them below.
Read more of my tips for preparing financially for new little additions on Well Rounded NY, where I’m a new personal finance contributor.