My wife and I were recently blessed with our first child. Like most parents, we were excited to start this new chapter of our lives as a family. Accompanied by all the wonderful emotions and thoughts of being new parents were our worries about providing for our baby’s future. My wife asked how we should save for his education, knowing the current economic environment requires that parents start saving for higher education costs as soon as possible. It’s natural to feel overwhelmed by this question, because there are many options to explore. Ease those feelings by taking baby steps to your financial future.
First Things First – Create a Budget
Before you can make an informed decision about how to start saving for post high school education, however, you should go back to the basics. Start by creating a budget that includes all of your current necessities (including saving for your own retirement) and then add all the needs of your new little one (items such as diapers, formula, baby clothes, daycare and so on).
Once you have that information organized and prioritized, you can decide how much can be saved for your child’s future education. The cost of education has been steadily rising over the last several decades. According to a USA Today report, the average inflation rate for university tuition is about 6 percent, double the national average for inflation.
Explore College Saving Options
One of the best ways to combat this problem is a college savings vehicle known as a 529 plan. Contributions to a 529 are invested in mutual funds to help your money keep up with or outpace inflation; earnings grow tax-deferred and, as long as the funds are used for education costs, the withdrawals are tax-free. There are many 529 plan options, and your Perspective advisor can help you compare and choose the one best for your family.
Having a budget and making a decision on how to invest for education is sure to free up time, so you can enjoy the fleeting moments of wonder with your new bundle of love. They are only babies for a short time!