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Saving for Your Child’s College Education: A Guide by O1ne Mortgage

When it comes to saving for your child’s college education, there are no strict rules. While some experts offer guidelines, the amount you should save depends on your budget, how much of your child’s expenses you want to cover, and where you expect them to attend school. Here are some steps to help you start saving effectively.

Determine Your Ability to Contribute

Before opening an educational savings plan, assess how much you can reasonably contribute each month. Here are some steps to guide your decision:

1. Prioritize Your Financial Plan

It’s admirable to want to support your child financially, but it’s crucial to secure your own financial stability first. Ensure you have a solid emergency fund and are on track with your retirement savings. This approach protects your child’s interests now and prevents future financial burdens on them.

While you don’t need to have every aspect of your financial plan perfected before saving for college, consider starting with a lower contribution if other financial goals need attention. You can increase your savings later as your financial situation improves.

2. Review Your Budget

If you haven’t already, create a budget by reviewing your income and expenses over the past few months. Categorize each expense to understand where your money is going. Determine how much you can consistently set aside each month for education savings, considering other financial goals. Adjust your budget over time to increase your savings as needed.

Remember, 529 plans and other educational savings accounts may penalize you for withdrawing money for non-educational expenses. Avoid setting aside money you might need access to later.

3. Set a Savings Limit

Decide how much you want to save based on various scenarios:

• Pay for all four years at a state university.
• Pay for all four years at a specific college or university.
• Cover a portion of the costs, with your child making up the rest through scholarships and financial aid.
• Pay only for tuition and expenses.
• Cover all expenses not related to tuition and fees.

Align your savings goal with your budget to ensure feasibility.

Aim for at Least One-Third of the Total Cost

Some experts suggest aiming to cover about one-third of the average tuition cost with your savings. The remaining costs can be covered using current income, assuming you’ll earn more in the future, and financial aid such as scholarships, grants, and student loans.

Keep in mind that college costs are rising. Use an online college savings calculator to estimate future tuition costs and factor in average annual returns based on your investment portfolio in a 529 plan.

Help Your Child Set Realistic Goals

As your child grows older, discuss their college aspirations and the associated costs. Encourage them to apply to multiple schools to compare financial aid packages. Discuss the pros and cons of each option, such as attending a more expensive university with better resources versus a less expensive school with less debt.

Empower your child to make informed decisions based on all available information.

The Bottom Line

Deciding how much to save for college can be challenging, especially if your children are young. While many factors involve guesswork, following these steps can help you gauge your ability to save and determine the right monthly contribution. Take your time to consider all important factors and adjust your savings plan as needed.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you achieve your financial goals with confidence.

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