Maureen Spain and her husband feel the pull of competing financial priorities.
They want to save for college for their three children — ages 2, 5 and 7 — but they also have child care costs, retirement accounts to fill and are still paying off Spain’s graduate school loans.
When their oldest son was born, they padded his 529 account — a type of tax-advantaged college savings account — with a chunk of savings. But for the other two children, they put in $25 a month, in addition to gifts from family members.
“I know that’s not going to be enough, but it’s kind of just what we can afford at the moment,” says Spain, who lives in Oak Park, Illinois.
But experts say Spain and her family are on the right track. One of the first steps to hitting a college savings goal is to make regular saving a habit, even if you can’t afford much at first.
Step 1: Set a goal. Play with a calculator, like this one offered by the College Board, to choose a realistic savings goal, says Mary Morris, chairwoman of the College Savings Foundation and CEO of Virginia529 College Savings Plan. Consider what type of school your child may attend — private, public, four-year or two-year.
One strategy is to try to save for a third of the future costs — while planning to use loans, grants and income while the child is in college to pay for the other two-thirds. For a public university, that would be about $80,000 for a child born today, while it would be around $150,000 for a private nonprofit.
Get tips on [how to set a college savings goal.]
Step 2: Break it down. Make reaching the goal more manageable by making monthly contributions to a college savings account, such as a 529, or another savings vehicle. You receive tax-deferred growth via 529 plans and can take out the money as long as you use it for college-related expenses.
“If your employer has a payroll deduction, that’s the easiest way because you don’t see it,” says Susie Bauer, 529 manager for Robert W. Baird & Co.
If not, set up automatic withdrawals from your bank account into a savings vehicle. Start early to take full advantage of the power of compounding interest. If you make it a habit, you won’t miss the money and won’t be tempted to stop, Morris says.
“Whatever it is, putting the money aside methodically — monthly or biweekly — means you actually get it done,” says Morris. “You forget about that money and let it do its job of hopefully growing and preparing for the future.”
If you’re aiming to pay for a third of costs at an in-state public university, that would mean setting aside about $250 a month for a child born today, assuming an interest rate of 5 percent a year. A third of future private college costs would mean setting aside about $440 a month.
Check out [what U.S. News data reveal about college costs.]
But if you can’t hit those numbers, even a little bit helps.
“Even families who can save $25 to $50 a month and have started from the beginning with that, that’s a lot more than not doing anything,” Bauer says.
Saving $25 a month for a child starting from birth would result in more than $8,000 in savings by the time the child goes to college, assuming a 5 percent interest rate.
Step 3: Re-evaluate annually. Take a look at your college savings every year to see if you can manage to increase your contribution. Families often find they can increase their savings as their income goes up or as other costs fall away, such as no longer needing to pay for diapers or child care, Morris says.
“Maybe five years in, you’ll say, ‘OK, I’m in a little better shape, maybe I’ve gotten a raise or the kids aren’t in day care,'” Morris says.
Step 4: Leverage gifts. Spain says she encourages family members to give college savings as presents. Over the years, that has added up to a couple thousand dollars, she says.
College savings can be a meaningful gift and can be an important supplement to regular contributions, R.W. Baird’s Bauer says.
“Instead of buying clothes and toys at Christmas, have them put money into the 529,” Bauer says.
Learn what [options there are for giving the gift of college savings.]
Step 5: Involve your child. Involve your child in both the saving process and college discussions. Encourage teenagers to put money that they earn babysitting or working summer jobs into their college funds, Morris says.
“It doesn’t have to be a ton, but make it be meaningful,” Morris says. “Let them know it’s their money.”
Trying to save for college? Get tips and more in the U.S. News College Savings 101 center.
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Take 5 Steps to Reach a College Savings Goal originally appeared on usnews.com
