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Saving for College
The first thing I'd say is there are three extremely important parts of saving for college:
1. Start early
2. Start now
3. Set up an automatic deposit/withdrawal
To many those will seem like silly suggestions. But the most important factor in college savings is time. The biggest thing in your favor as you save for college is time - you have lots of time between a child's birth and when they start college. It doesn't even matter how much you start with, but a regular contribution to some sort of account (savings, money market, stocks, bonds, IRA's, a 529, whatever...) will compound over time, earn interest, and grow much larger than the contribution itself.
Don't delay in starting that account/investment. College is filled with students whose parents planned to start that investment, but never found the time. They have little or no money saved for their child's education, usually feel badly about it, and wish they'd set something aside long ago. Even if you set aside only $25 per month, starting when your child is born, you'd have over $5,000 in principal alone. And while that $5,000 won't pay for college by itself, I promise you'll be glad you have that money when college bills start to arrive.
If you set up an automatic payment or withdrawal from your paycheck, it will become a regular investment. And because you made it automatic, you'll only feel the 'loss' of the money a time or two. Maybe the first month or two will it seem like you don't have as much money as you had before, and that's true. But once you've had the money taken out for a couple of months, you'll get used to it and it will be normal, and gone before you know it's there. This is the best way to save, so you don't feel it or have to make any more decisions with the money than is absolutely necessary.
Rule of Thirds
I can't take credit for this next idea, but I like it a lot and if you know where it came from please e-mail me and tell me. I'll be happy to give credit where credit is due.
The Rule of Thirds is a way of looking at paying for college that makes it seem much less daunting. I've seen calculations that give you exactly the dollar amount it will cost you to put your kid through four years of college, based on when they were born. While these calculations are helpful to the rich, so they can plan accordingly, I think they're useless to the masses, and even counterproductive to most. I've heard people say something like this over and over again, "The cost of sending my kid to college is just so high, I feel like I'll never be able to raise that much money".
For most of us, actually paying for all of our kids' college really is more than we can handle, not to mention if you have more than one child! So the rule of thirds breaks it down in terms that make sense, and seem much more attainable.
The Rule of Thirds holds that college expenses should be divided into thirds. One third of the cost of college should be paid through past income (savings). Another third should be paid for through current income (month to month, paychecks, etc.). And the last third should be paid for through future income (loans). I add to that rule, that it is not completely the parent's responsibility to pay for the entirety of college - the student bears some of the responsibility. And I would suggest the student bears a piece of each third. What piece each student bears is up to that student's family, but I firmly believe students should have some 'skin in the game'. If not, they will value the experience, the costs, and the benefits differently.
more to come...