A College Planning Timeline to Help You Pay

Although saving for college lacks the urgency of, say, an ear infection or a skinned knee, it is never too early to think about how to pay for the second most expensive purchase of your life. An early start is crucial. Because of compounding, money you save today will probably be worth twice as much as the same amount saved ten years from now. Heed the Rule of 72: if you want to find out how long it will take for your money to double, divide 72 by the rate of return. A very do-able 7.2 percent rate of return will double your nest egg after a decade, not counting inflation.

Another fundamental rule: Buy stock mutual funds. The most common college saving mistake is to put too much money in conservative investments such as bonds or CDs. Historically, stocks have gained more than 10 percent per year, and in the past 20 years that figure has been closer to 15 percent. With 10 years or more until you need the money, most financial pros would recommend keeping at least three quarters of your college kitty in stocks, and preferably growth-oriented accounts. A few other tips:

Don't Skimp On Retirement Savings. Put away much as possible in tax-preferred retirement plans, wspecially if your employer will match the contribution, as a 401(k) or 403(b) plan. Retirement accounts are among the few places to put money that won't affect your ability to qualify for need-based aid. You can usually borrow against the accumulation, or in the case of an IRA, make penalty-free withdrawals to pay for education.

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