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It may seem a bit early to start planning for college -- after all, your child is barely out of diapers.
However, when saving for big-ticket items (and college is one of the biggest), the best friend you have is time. The sooner you figure out a plan that works for your family and put it in motion, the easier it will be to save for college. Here are three things to do before your child's fifth birthday.
1. Set Your Goals
Financial planners are always preaching the importance of setting your goals first. There are benefits to doing this: It will be easier to maintain the saving discipline if you know what you're shooting for, and you'll know early on if you and your partner have different ideas about paying for college. Here are the issues you should sort out:
- How much of the bill are you willing to pay? Maybe your parents paid for your entire college education and you want to do the same for your child. Or perhaps you feel a child only truly values an education if she has to pay for a chunk of it herself.
- Will you pay for private school? Some parents pay college costs up to the level of tuition, room and board at the local State U. If the child has his heart set on a pricey private school, he makes up the difference.
- Will you pay for graduate school? Medical or law school can double or triple college expenses.
2. Crunch the Numbers
Now that you agree on what you're willing to pay for, you'll need to figure out how much it will cost. Some evening when your cherub is asleep, fire up the computer and run the numbers. There are several college calculators that can guide you through the process.
Try out a few different scenarios: public school, private school, more children (if that's part of your plan). If you plan to fund four years at a public university, you'll need to save about $220 a month -- equivalent to a $2,000 IRA each year plus an extra $50 a month. If you plan to foot the whole bill at a private college (on average $21,000 a year today), you'll need to put aside about $500 a month.
If those numbers are out of your reach, don't give up. Delaying will only make it worse. Waiting just four years will increase your monthly savings amount by 50 percent, and if you don't start until your child is in eighth grade, you'll have to save three times as much.
On the other hand, there's no rule that you have to save the entire amount before your child can set foot in a university. Most parents pay for college through a patchwork-quilt approach: some savings, some current income, student loans, a home equity line of credit, summer earnings. Figure out a monthly amount you can work into your budget and move on to the next step.