If you choose to support your child financially through college, you’ll have a variety of new expenses to cover and will need to adjust your budget accordingly. With that in mind, here are a few tips to get you started.
Identify and Anticipate Future Expenses
When saving for your child’s education, it’s important to accurately identify and anticipate their future expenses. Tuition often makes up the bulk of college expenses, with room and board costs coming in at a close second. Books, electronics, furnishings, and housewares can also add up and should be considered in advance.
As you and your child begin to develop your budget, you’ll learn to manage expectations about college and gain a better understanding of what you can and can’t afford.
Tap Into College Savings Wisely
A 529 educational savings plan may be your best option when saving for college. A 529 plan is a tax-free savings account designed to help your child pay for higher education costs, including tuition, room and board, supplies, and more. If you choose a Pennsylvania 529, the value of your account will be exempt from Pennsylvania inheritance tax and not counted in your child’s financial aid package. Be sure to look into other possible tax deductions as well.
However, 529 plans come with multiple stipulations, and it can be difficult to determine the best time to tap into them. Make sure you understand exactly what counts as a qualified expense with your 529 plan first. The following are all qualified 529 plan expenses for your beneficiary:
- College tuition
- Books, computers, and school supplies
- Room and board, up to the cost calculated on the school’s financial aid website
When using your 529 to pay for educational expenses, it’s often best to pay the school directly to leave an easy-to-follow paper trail. If you use funds from your 529 plan on an unqualified purchase, you’ll be subject to pay a 10% penalty on your investment earnings.
If you’ve built up a 529 plan for your child and find that there are remaining funds after their undergraduate program, you may want to save that money in case your child goes to graduate school. The funds can be used for graduate programs, law programs, and medical programs.
Readjust Your Budget
After assessing your spending habits and reviewing your payment options, it’s time to readjust your budget and make room for the many expenses associated with college. Since college costs continue to rise year after year, it’s essential that you start putting aside a set amount of money on a consistent basis to reach your financial goals and grow your wealth.
Now’s the time to be realistic about your child’s choices. Can you afford your child’s costly dream school, or should a less expensive option be considered? What about transportation? Will your child need a car on campus? All of these components are essential to consider as you rework your budget.
Talk About Financial Expectations
Before your child begins applying to schools, you should find time for an open and honest conversation about the financial expectations surrounding their education. What costs are you covering for your child? Will you expect them to pay you back? Create a list of expenses, such as the following, and outline who will pay for them.
- Room and board
- Books, electronics, furnishings, and housewares
- Extracurriculars and social activities
Talk About Having Your Child Contribute
By having your child financially contribute to their own college education, you can teach them to take on more responsibility. Consider asking your college-age child to work part time on weekends or during the summer to pay for college expenses like books, extracurriculars, or the cost of their car.
Today, it’s not uncommon for college students to work while receiving an education. Working in college can help your child learn how to manage their money, track their spending, and establish credit before they graduate.
However, many parents opt to support their kids throughout college to minimize distractions and prevent their work hours from interfering with their education. Talk with your child about working while attending college to better determine which approach works the best for both of you. If eligible, your child may be able to find a work-study position on campus, which will allow them to earn a paycheck and gain valuable work experience at the same time.
Prepare for Your Child’s College Education with PSECU
At PSECU, we’re ready to help you start saving for your child’s future. Reach out to learn more about a Coverdell Education Savings Account (ESA), IRAs, and other investment options we offer to let your money grow and keep up with the cost of college.