Have you ever heard the old saying, “You can’t start saving for your kids’ college education too early”? Unlike a lot of old sayings, this one is absolutely true. As soon as you bring that little bundle of joy home from the hospital, you should be thinking about how to save the bundle they may need about 18 years later.
College can be a crushing expense for students and their families – especially at four-year schools. According to Stats Can, tuition fees for undergrads (data based on 2019/2020) range from $4,624 for the field of education and go up to $21,717 for dentistry. And you can expect those costs to grow as your child gets closer to college age. So, parents should get started saving early – the earlier, the better. Some parents even start saving before their child is born. But how to start? Here are some tips.
Set a target amount.
Determine the fund you want to have by the time your child is ready for college. It may be unrealistic to save enough to cover all college costs, so consider a target of half or a third of what you expect the total tab to be. The rest can be paid in real-time by the student and/or parents and relatives, and student loans or scholarships may come into play. Bottom line: Any money saved is better than no money saved.
Establish a separate college fund.
It’ll be easier for you to keep your hands off the money if it’s not mixed in with another account. One way to accomplish this is with an RESP. If you choose to have your RESP account run by a plan administrator, you will pay a fee for their services, but you’ll also have better access/knowledge to the available grants for your child and have the plan overseen by a professional. If you plan to oversee the RESP on your own, you’ll still have access to the grants and programs but must stay on top of the deadlines and seek out the information on your own.
Decide on an amount you can afford to set aside on a regular basis.
If you’re young and you expect your income to rise over time, you might want to save modestly now and increase what you set aside each time you get a raise. But start now and get in the habit of saving; you may find you can live without the money more easily than you thought.
Decide on how frequently you’ll transfer money to the college account, and stick with it.
You might time your transfers to how often you get paid: monthly, twice a month, or whatever works best for you. Frequent, smaller transfers might be easier for you to handle than larger, less-frequent deposits.
Set up an automatic transfer from your bank account to the college fund.
Don’t trust yourself to make the transfers manually – you might “forget,” deliberately or otherwise.
Decide how much investment risk you can tolerate.
A traditional bank savings account will spare you any risk, but your contributed money will earn less than the inflation rate. On the other hand, investing heavily in stocks could boost your earnings but also expose your account to losses. Consider a mix of investments at first and then scale back on stocks as college age approaches.