How to Save Money for Your Child's College Education While Saving for Your Future

According to CollegeBoard, the average cost for a college education in 2006-2007 was $22,218 a year for a private university and $5,836 annually for a public university. These daunting figures may overwhelm parents already thinking about financing their child's education. If parents want to make a contribution to their child's college education, the time to start saving is now. Here are some simple ways to start investing money for your child's college education today while still saving for your own retirement.

Open a savings account in your child's name.
Opening a savings account in your child's name means that your children can access this money without a penalty if they decide not to go to a four year university. Afraid you won't be able to pinch enough pennies to save? Consider a direct deposit from your paycheck for only $5-10. Though this might seem like a small amount, it can add up over time and might not be missed. If your children receive money for birthdays or holidays, insist that they deposit half in their savings account. They might not like it at the time, but they'll appreciate it when they turn 18! Even if this money isn't necessary for tuition, it can come in handy for books, school supplies, and meal plans.

Invest in a 529 plan.
A 529 plan is "designed to help individuals and families save for college in a tax-advantaged way and offers valuable advantages, including tax-deferred growth, generous contribution limits, attractive investment options, and professional investment management" (Source). We save for our daughters with the College Savings Plan of Maryland. You can enroll in any state's plan and use the money for any college or university in the country. Many states have tax advantages for the parents if they enroll in a plan sponsored by the state that they live in. Again, deposit directly from your paycheck. This money is earmarked specifically for college, but can be withdrawn for other purposes with a small penalty. The money grows tax free if it is used for educational purposes when it is withdrawn. This can be a big financial advantage. It will also earn at a higher return than a regular savings account.

Don't forget about loans.
Don't forget that not only are you able to take out loans in order to help pay for your child's college education, but they can take out student loans in their own names as well. Many of these will allow them to defer payment until they have graduated from school. Whatever you do, do not save so aggressively for your child's college education that you forget to invest in your own retirement. Remember that banks give loans for college educations, but none will loan money for retirement.

Be practical and realistic when setting financial goals for your child's education. It isn't necessary to save enough money to entirely finance your child's education, and you may not want to. Even if your goal isn't to save enough money for four years at an Ivy League school, you won't regret investing money in your child's future.

Resources:
College Savings Plans of Maryland; http://www.collegesavingsmd.org/ & http://www.collegesavingsmd.org/GT2faqs.cfm
CollegeBoard; http://www.collegeboard.com/student/pay/add-it-up/4494.html