Can’t afford the fancy college of your child’s dreams? When it happens in the comedy The House, parents Will Ferrell and Amy Poehler start an underground casino in their basement. Financial professional Brad Allen talks with Milwaukee’s WTMJ-4 about options for parents finding themselves in this all-too-real situation:
1. Start Saving Early – A lot of parents wait too long to start saving for college. You should start saving while your child is still in diapers, if not before they’re born! Plan to save about $250 per month to pay for an in-state, public college. If your child goes to a private, non-profit college, you’ll need twice that – $500 a month!
2. Choose the Right Vehicle – Most parents are using a general savings account, but with interest rates as low as they are, you may want to look at other options. 529 plans allow your savings to grow tax-deferred, and your distributions come out tax-free on the federal level. However, if you use the money for something other than college expenses, you will likely have to pay a penalty.
3. Consider All Options – There are plenty of alternatives to a brand-name school that can get your child a great education. Consider an in-state, public university, which can save you thousands each year. And don’t rule out community college. Most of the classes students take in those first two years can be taken at a community college for a fraction of the cost.
4. Get Creative – Don’t miss out on scholarships and grants- students don’t need to get straight As to qualify, especially if they have extracurricular activities like band, student council and volunteering. Your child might also consider work-study – it’ll give them valuable experience and help cover costs.
5. Prioritize Your Retirement – In a recent study, nearly half of parents said supporting their children financially hurt their retirement savings. A good rule of thumb is to be putting away 10-15% of your salary into a 401(k) or IRA. This is money that is dedicated to retirement – you should not be withdrawing from it early for yourself or your kids.