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Saving For College | The Dos and Don’ts of Saving for Your Child’s College Fund

04.25.2022 by Harry // Leave a Comment

Sending your children off to college may feel very far away, but that time comes sooner than you think, regardless of how old your children are.

Therefore, it is essential to be prepared for this phase financially so that you can make sure that your children have access to the best options without putting a significant strain on your family’s finances. 

There is a lot of good and bad advice on how best to save for college, so weighing the options that best fit your family is the only way to make sure you save smart. This article will explore the best and worst tips for saving for your child’s college fund to help you make the right decision. 

Do: Start Early

It is never too early to start saving for college. Many parents open college savings accounts as soon as they return home from the hospital with their firstborn child, which is not necessarily a bad idea. 

The earlier you start saving for college, the less you must contribute incrementally because the money has more time to add up. Make college savings a part of your monthly expenses early on, and you will be able to look at colleges with your children without stress when the time is right.

For example, if you start saving for college in your child’s first year, you will have 17-18 years to save. By contrast, if you wait until your child is ten to start saving, you will only have 7-8 years to save. 

In the second scenario, you will have to contribute double the amount each week or month to save the same amount of money.

This can put a significant financial strain on your family depending on how much you need to save for either multiple children or advanced degrees. 

Don’t: Wait Until the Last Minute 

Assuming that you will figure out college savings later is a dangerous game to play. You are relying on yourself to remember to do research and set something up, but it is easy for life to get in the way and prevent you from getting it done. 

If you wait until your child is in middle school or even high school to plan for college savings, you will miss out on many years of compounding interest. That interest means that your money is working for you. 

The more you frontload your savings, the longer the interest must work for you and make you more money to put towards college. This is the biggest reason it’s important to get started saving for your children’s college funds in their first five years. 

Do: Investigate 529 plans and Roth IRAs

There are several different options for college savings. First, research the different options and find the one(s) that aligns best with your family’s college savings goals.

Then, depending on what works best, you can put all your money in one savings avenue or spread it out amongst a few different options. 

Here are some of the best options for college savings.

529 Plans

529 plans are one of the most popular college savings vehicles available. They are straightforward to open, and you can start saving money toward your child’s future education. 

You can set money aside over time in this account, and the funds you contribute are tax-deductible, which is beneficial as well. In addition, other family members, like grandparents or aunts and uncles, can also contribute money to your child’s 529 plan. 

The money in a 529 plan can only be used towards eligible higher education institutions and the associated expenses. However, it is an excellent option if you know that your child will go to at least a community college or four-year university.

If you think there is a possibility that your child may not go to college or may pursue a nontraditional educational path, you may want to weigh whether this is the right decision for your family. 

Roth IRAs

Although a Roth IRA is typically used for retirement savings, that’s not all you can do with it. 

You can use these popular after-tax investment accounts to fund your child’s future in education and beyond. In addition, because you have already paid taxes on the money, you do not have to worry about future tax rate fluctuation on the account’s balance.

Using a Roth IRA to save for your child’s future is an excellent choice because the money can be used for anything; it is not limited to only direct educational costs. For example, if your child wants to start a business, make an investment, or make a large purchase like a car or a home, and the Roth IRA money can be used. 

Because a Roth IRA does not have restrictions on what it can be spent on, many parents open both a 529 and a Roth IRA for their children to access both types of funds. 

It is worth noting that only the people who set up the Roth IRA can contribute to it, so if this is important to you, it might not be a good option. 

Don’t: Rely on Financial Aid and Scholarships 

Many parents who avoid saving for college hope that their children will qualify for financial aid or scholarships to pay for the bulk of their education. 

While your child may qualify for one or both things, there are good reasons not to rely solely on these things to fund your child’s education completely.

Although financial aid is a great option to help cover the cost of college, it has some significant pitfalls. First, it will set you and your child up with potentially a large amount of debt at a very high-interest rate once they graduate, which can be challenging to manage and cause long-term financial strains.

 Scholarships can be a helpful way to augment some of your child’s college education. Many colleges and universities offer scholarship programs for specific degree programs or sports teams, and they can significantly reduce or eliminate your out-of-pocket college expenses.

How much impact scholarships can have been very dependent on the situation, and it is something you may not know until your child is applying for college. It is essential to have savings ready as a backup because only a scholarship will cover all costs for their entire four years, in very rare cases. 

Do: Check the Performance of your Accounts Regularly

Even if you set up your child’s college savings accounts early, it is important not to set them up and forget them. Many parents think that the hard work is done once the account is set up until it is time to cash it in for college. 

Make a plan to check in on it at least once per year, but ideally several times per year. This will help you keep track of its performance, notice opportunities for changes to your investments or contributions, and more. 

Checking in on how things are going consistently will help ensure you have enough money in your account when you need it. In addition, this proactive approach to managing your child’s college savings will pay off in the future, so you will not encounter any surprises when it is too late.

10 Dos and Don’ts for Money-Saving Students

Don’t: Plan To Use Retirement Money 

Many caring parents may be tempted to dip into their retirement savings accounts to pay for their children’s college education.

While this often comes from a good place of wanting to help your child succeed, it is never a good idea to use retirement funds to pay for college. 

Using retirement savings to pay for college will incur penalties for early withdrawal and decrease the amount available to you when you retire, which can impact both you and your child’s future. The best thing to do is to set them up with their own accounts to save for them and assist them instead.

Conclusion

There are many ways to prepare in advance to pay for your child’s college education. It is essential to research the options and decide which one will work best for you and your family. 

Even if you don’t intend to pay for all your child’s schooling or if they do not end up wanting to go to college, it is always good to have some savings to help them get started in the future. 

Image Credit: [MachineHeadz]

Categories // Money Management, Savings

The Best Financial Books of 2021

09.16.2021 by Harry //

There are thousands of books out there about how to become better with finances, how to invest, and how to be okay with talking about money.

Listed below are books that will teach you how to go from living tightly with money to retiring debt and being worry-free. There are many books out there for those wanting to learn about finances!

Retire Before Mom and Dad: The Simple Numbers Behind a Lifetime of Financial Freedom by Rob Berger

Retire Before Mom and Dad is a book that teaches you how to improve your financial future by using psychology, finance, and self-help concepts. This is a great book for those that are just beginning to get into the world of personal finance or those that want to learn more!

Rob Berger is a litigation attorney and the founder of popular personal finance and investing website.

Rob’s goal is to help people achieve financial freedom by helping them live a life free of financial stress and worry by teaching them about wealth and living financially free. 

In Retire Before Mom and Dad, Rob writes about the difference between a Roth 401K and a Traditional 401K, the ins and outs of investing, how to retire debt-free, and how to successfully and carefully analyze long-term decisions.

His simple approach and clear writing will teach you how to become financially wise and efficient, as well as how to invest and self-help. This is a great book for those just getting started in the financial world, or those wanting to learn more!

When She Makes More by Farnoosh Torabi

In When She Makes More, Farnoosh Torabi teaches the reader how to deal with income imbalances in relationships, and how to help women manage these circumstances that can have negative impacts. 

Today, there are more women than ever working as the household’s top earners. However, they face higher risks of burning out, depressions, infidelity, and even divorce. Farnoosh uses her real-life experiences to connect the reader on a personal level.

Sold as a physical book or an audiobook, Farnoosh Torabi outlines rules to help her readers learn how to address financial imbalances that can affect relationships negatively and how to become okay with talking about these problems.

In When She Makes More, readers will learn how to deal with changes in dating and marriage in society, how to know when to let your significant other lead, and how to allow your significant other to become a stay-at-home parent without making their life too easy. 

Broke Millennial: Stop Scraping By and Get Your Financial Life Together by Erin Lowry

Written for Millennials, Broke Millennial gives great insights on how to save money, handle student loan debt, negotiate a pay raise, and how to ‘adult’.

Erin gives humor and empathy a fun twist in Broke Millennials!

No one likes to think about money, especially when money is tight. In Broke Millennial, the reader will learn how to be okay with talking out loud about money and how to deal with it.

Described as refreshing and conversational, Erin relates to her audience in a way that will guide them to a path of financial wellness! 

Written for Millennials, Erin doesn’t use boring language to talk about investing and credit card debt, but rather uses analogies to relate those topics to Tinder, dating, and marriage.

Erin even talks about how to manage student loans and what to do when your dining out with friends and can’t afford to split the bill.

Written by a millennial for a millennial, this is a must-read!

How I Invest My Money by Joshua Brown and Brian Portnoy

In How I Invest My Money, you will learn about 25 experts and how they invest, spend, save, and give their own money.

Joshua Brown and Brian Portnoy will teach you there is no right or wrong way to use your money!

Joshua and Brian talked to 25 different financial experts, including financial advisors, portfolio managers, and venture capitalists, and have turned their stories into essays about their lives, families, struggles, and aspirations.

https://www.harriman-house.com/Howinvestmoney

How I Invest My Money describes how there is no right or wrong way to handle your money, but rather use these stories to teach the reader how to figure out what works best for them. 

You will read about different perspectives on bonds, stocks, funds, charity, and other means of achieving the life you have always dreamed of. How I Invest My Money will also teach your how to create and keep a healthy relationship with money and your values. 

Spend Well, Live Rich by Michelle Singletary

In Spend Well, Live Rich, Michelle Singletary teaches the reader how to support a family while living on a budget.

Michelle also teaches the reader that it’s okay to not feel bad about not spending. 

Michelle Singletary was raised by Big Mama, her grandmother who made $13,000 a year. Big Mama was the one who taught Michelle the “7 Money Mantras for a Richer Life.”

These mantras include “If it’s on your a$$, it’s not an asset,” “Sweat the small stuff,” Keep it simple,” and “Priorities lead to prosperity.” 

How to Analyze Your Financial Upbringing
Check out our article on analyzing your own financial upbringing.

In Spend Will, Live Rich, Michelle teaches the reader how to teach children the value of money, how to become comfortable talking about money in relationships, how to save money as a household, and how to look for and get the best loans for your situation. 

Summary

There are many resources to help you become comfortable with finances.

By becoming comfortable with your finances, you can have conversations about money in your relationships, learn how to save money as a household, and become okay with saying no. Start your journey to financial freedom today!

Categories // Earn Money, Education, Featured, Investing, Money Management, Reviews, Tips

How to Analyze Your Financial Upbringing

07.29.2021 by Harry //

Studies have shown that most of our financial habits and money decisions that affect our financial health are largely influenced by our upbringing. Your parents largely influence the way you save, spend, or view money.

A quick look at your finances can help reveal your financial health. Your financial health considers your net worth, debt, retirement plans, emergency funds, and several other financial implications.

https://thinksaveretire.com/parents-money-habits/

Why You Need to Evaluate Your Financial Health

It is not out of place to see a doctor for a physical check-up. In the same way, a routine fiscal check is good for your financial health. It will help you make the necessary economic adjustments.  

Here are Three of the Most Popular Ways to Assess your Financial Health

#1. Figuring Out Your Net Worth 

Determining your net worth is the first step in assessing where you stand financially. You can do this by adding all your assets and subtracting your liabilities.

Don’t beat yourself up. It’s completely okay to have a negative balance now. The goal is to write it down and work towards increasing your assets.

Action plan

Your net worth serves as a personal measuring tool that should spur you to take action. Focus on increasing your net worth by 5% to 10% every year. Your net worth is personal so remember never to compare yourself with someone else. 

#2. Take a Closer Look at Your Income to Debt Ratio

After figuring out your net worth, the next step is to calculate your income-to-debt ratio. Calculating your debt-to-income ratio helps you keep your debt under control.

You can get this by dividing your income by the total amount of debt you have. For example, if your monthly gross income is $6,000 and you have a total debt payment of $2,000, your debt-to-income ratio is 30%.

Action plan 

A high debt to income ratio means you need to exercise caution. Experts advise you keep the ratio to 20% or lower. You could pick on a side hustle or take on another job to help you pay up your debts. But most importantly, work on reducing your expenditure.

Identifying how you were raised could help you put things in perspective and set you on track for the future.

#3. Take Budgeting Seriously

If you aren’t tracking where your money is going, you need to start now. It is not enough to save. Make sure you know where every single penny comes from and goes to.

What to Do After My Emergency Fund Is Fully Funded?

Action plan 

Create a budget and stick to it. This might seem time-consuming, but there are lots of platforms offering automated solutions. 

3 Common Financial Upbringings | How They Affect Your Money Habits as an Adult

After evaluating your financial health, it is important to consider your financial upbringing. Growing up, it is natural to look up to your parents and immediate family and want to be like them.

So, it is not unusual for you to pick up the money habits of your parents or guardians. It is also possible to be negatively affected by their money habits.

#1. Little Financial Education

Some parents never saw the need to educate their children about financial literacy and good money behavior. This could be because their parents also never taught them.

Effects 

Adults who grew up with zero financial education end up not knowing how to strike the right balance. They could develop unhealthy financial habits like overspending and undersaving. Others hoard money and live miserly.

Solution 

Seek to acquire financial knowledge. You could enroll in finance courses, read investment books, or enlist the help of a portfolio manager to help you best manage your finances. 

32. Frugal Upbringing

A lot of families fall within the low to middle-income bracket. This means prioritizing the family’s needs over luxuries. It’s not uncommon for kids from such homes to have their requests for expensive gadgets denied or replaced with a cheaper alternative. 

Effects

If you are from a frugal family, you might splurge on wants rather than needs to compensate for childhood luxuries you never had. You might end up accumulating debts to fund this lifestyle. On the other hand, you could also choose to emulate your parents’ financial discipline.

Solution

Analyze your money habits. Are you embracing unhealthy money habits just to make up for your childhood? If you are, you could draw up a savings and investment goal.

You could also get an accountability coach to keep you in check or join groups of like-minded individuals.

#3. Luxurious Childhood 

If you grew up in rich homes, it is easy to emulate your parents’ lavish lifestyle. You even grow up with a sense of entitlement, expecting things to be easily handed to you.

Effects 

If you are from a well-to-do upbringing, there is a temptation to live above your means. You might want to match the luxury you enjoyed while living with your parents. If you are not careful, this could you lead you into debt, especially if your financial situation changes.

Solution

Keep a distance from friends and environments that cause you to overspend. Reduce the urge to splurge; rather, Indulge yourself occasionally.

Final Thoughts

Tracing your financial upbringing may help you improve your future. Take a holistic look at how you were raised, identify harmful money habits you have picked up, and work on replacing them with healthy financial habits.

Image Credit: [Thiago Matos]

Categories // Education, Honesty, Money Management, Weekly Wisdom

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