Recs

9

3 Tips to Start Saving for College

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

When you bring your child home for the first time, the last thing on your mind is how you're going to pay for a college education years from now. Yet it's never too early to start thinking about how you'll finance your child's college expenses, and the earlier you start, the easier it is to reach the ultimate goal.

Getting your bearings
Raising a child can be one of the most financially stressful things you'll ever do. Infants constantly need new clothes to replace what they grow out of. Whether you work and pay for day care or stay home to care for your child, the added expense or loss of income substantially reduces your disposable income. And even once your child reaches school age, increasing costs can stretch the budgets of even the most frugal families to the limit.

With all the challenges of paying for your child's current needs, it's easy to understand how future needs get pushed to the backburner. But with some simple tips, you can start on a simple investing plan that will get your kid through college.

1. Start small.
A lot of people believe that if they can't save a big amount, they shouldn't even both saving at all. But if you acknowledge the limitations of your current financial situation and still make the effort to do what you can, you'll have accomplished the single most important milestone in saving for anything: setting aside that first dollar.

For instance, go through your expenses from an average day. I'd imagine that most people can find $1 to cut, whether it's buying something they don't need or paying more than they need to for what they do need. Put that $1 aside, and it's $30 per month, $365 per year, and $6,570 over 18 years.

2. Keep building.
Now granted, $6,570 won't get your child past the first semester at most schools these days, let alone years down the road. But you'll find that because you've started saving, you already have the groundwork in place to build on that saving further down the road.

In particular, identify opportunities for you to boost your saving over time. Here are some ways:

  • When you get a raise at work, earmark a small portion of the raise for college.
  • Take 10% of your tax refund every year for your college fund.
  • When unexpected windfalls come in, whether it's a work bonus or something like proceeds from a garage sale, set part of them aside for college.

Slowly but surely, that $30 per month will grow to $60, and then $90, and so on. It's not easy, but before you know it, your college savings will be much larger than it was.

3. Make low-cost investments.
Having worked so hard to save that money, the last thing you want is to pay it over to Wall Street's finest. Luckily, you don't have to.

There's a huge number of complicated ways to invest your college savings. Do some research and you'll run across strange-sounding things like 529 college savings plans and Coverdell ESAs, which you'll learn more about in future articles in the coming weeks. For now, though, informally setting money aside in an account you set up for yourself is an easy way to maintain complete access to whatever investments you want.

With Charles Schwab, Fidelity, and Vanguard offering commission-free ETF trading, low-cost exchange-traded funds make the perfect way to get started. For a child with 15 years to go before college, for instance, you could consider an aggressive portfolio like the following, composed entirely of no-cost ETFs from the relevant broker:

  • For Vanguard: 50% Vanguard Total Stock Market (NYSE: VTI  ) , 25% Vanguard Europe/Pacific ETF, 15% Vanguard Emerging Markets Stock (NYSE: VWO  ) , 10% Vanguard Total Bond Market (NYSE: BND  ) .
  • For Fidelity: 35% iShares S&P 500, 15% iShares Russell 2000 ETF (NYSE: IWM  ) , 25% iShares MSCI EAFE Index (NYSE: EFA  ) , 15% iShares Emerging Markets (NYSE: EEM  ) , 10% iShares Barclays Aggregate Bond (NYSE: AGG  ) .
  • For Schwab: 50% Schwab US Broad Market, 25% Schwab International Equity, 15% Schwab Emerging Markets, 10% Schwab Intermediate-Term US Treasury.

Of course, investing in stocks brings no guarantee that your money will grow. But with safer alternatives paying next to nothing right now, stocks are the best game in town -- and historically, they've responded to bad periods like what we've seen recently by posting stronger growth.

Don't wait another day!
Times are tough, and saving for college is an easy thing to put off. But by making even a modest start now, you'll set the stage for a successful long-range savings plan.

Stay tuned each Wednesday in September and October as Dan goes through the ins and outs of saving and paying for college.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Fool contributor Dan Caplinger started small and worked his way up. He owns shares of Vanguard Emerging Markets Stock ETF, as well as all the iShares stock ETFs listed. Charles Schwab is a Motley Fool Stock Advisor selection. The Fool owns shares of Vanguard Emerging Markets Stock ETF. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policyis as cozy as a soft, warm baby blanket.


Read/Post Comments (1) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 25, 2010, at 6:51 AM, rsinj wrote:

    The value of this article is almost zero. There is nothing in it which is specific to saving for college - it could be titled "How to save for Anything".

    Claiming a title about college savings is pure garbage when the single comment about the tax-advantaged college savings vehicles are that they're "complicated" and "strange sounding things" that will be discussed in future articles...I thought this was an article about saving for college?

    Seems that most articles these days are purely about generating content with little regard to the quality of that content. Very disappointing.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1300137, ~/Articles/ArticleHandler.aspx, 8/28/2014 3:21:08 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

Today's Market

updated 6 hours ago Sponsored by:
DOW 17,122.01 15.31 0.09%
S&P 500 2,000.12 0.10 0.00%
NASD 4,569.62 -1.02 -0.02%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/27/2014 4:00 PM
AGG $109.80 Up +0.14 +0.13%
iShares Barclays A… CAPS Rating: *
BND $82.47 Up +0.13 +0.16%
Vanguard Total Bon… CAPS Rating: *
EEM $45.58 Up +0.23 +0.51%
iShares MSCI Emerg… CAPS Rating: ***
EFA $67.04 Up +0.13 +0.19%
iShares MSCI EAFE… CAPS Rating: **
IWM $116.51 Down -0.29 -0.25%
iShares Russell 20… CAPS Rating: **
VTI $103.68 Down -0.06 -0.06%
Vanguard Total Sto… CAPS Rating: ***
VWO $45.85 Up +0.23 +0.50%
Vanguard Emerging… CAPS Rating: *****

Advertisement