Many think the only way to pay for rising college costs is to delay their retirement and even dip into their retirement funds to make ends meet. But it doesn’t have to be this way. You can prepare for your retirement, get the kids through college and pay the bills each month. It just takes a bit of discipline and planning.
Information is power
The first step toward conquering this problem is to understand how we go about preparing for our retirement and our kids’ college. Read investment books to help you navigate the minefield of investing. Research available college funding options, especially scholarships and grants. And do an honest assessment of your monthly expenditures.
College savings account
To save for your child’s college, look into a 529 college savings plan. You can put money into this account for tuition, those miscellaneous college fees, room and board. These funds can then be withdrawn to pay for qualified higher education expenses. And the best part is these funds can be tax-free. You may also qualify for a state tax break in your state if you contribute into a 529 plan.
The first dollars you save every month should be the ones that go into your 401(k) or workplace retirement plan. Your contribution to the employer plan should be equal to the employer match. This way you’ll get the tax savings on this money that’s earmarked for retirement.
If you don’t have a retirement plan at work, then save on your own. If you qualify for a Roth IRA, then put your retirement dollars in there each month. This way the after-tax money you save into this account will come back as tax-free funds in retirement.
Assess your spending
Take a good, hard look at your monthly expenses. Do this with an eye toward discerning “need” from “want.” That’s not to say that you can’t have the things you want. What that means is be frugal with your purchases, going for what you need first. Need includes retirement and saving for college. Need means utility bills, health insurance, food, clothing, etc. Want comes after the needs have been met. This is where the discipline part of the equation comes into play.
Another aspect of paying yourself first is to accumulate your emergency fund. This is a savings account that holds enough money to cover six months of your normal living expenses. Should an emergency arise, you don’t want to be forced to gut your retirement savings or deplete your college fund to cover expenses that weren’t expected.
Clear the credit cards
Last but not the least bit unimportant is a looming credit card balance. You may be paying far more in interest on your credit cards than the interest rate you’d pay on a college loan. Get those credit cards paid off, then keep the balance clear on them. These can come in handy in an emergency but aren’t much help if they’re all maxed out.