How To Build A College Fund For Your Child
How To Build A College Fund For Your Child
Here's how to think about having a “nest egg” in place for your future.
Written by The Stay Sane Mom Staff | See Comments | Updated 11/02/2021
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How To Build A College Fund For Your Child
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It’s only when you first become a parent that you truly start to appreciate your responsibility towards this amazing new life you’ve created. The nature of that responsibility will change a lot over time. It will, however, be many years before your child is financially independent. That means you need to think about having a “nest egg” in place for their future.
Why Create a “College Fund”?
These days, a “college fund” won’t necessarily be used to pay for college, although it often is. Essentially, it’s just a fund to get your child over that “bump” between childhood and adulthood. As such, it could be very helpful for you too.
After all, much as you love your child (and always will), you’re going to want (and need) them to fly the nest at some point. That means they’ll need a job and these days that almost certainly means they’ll need some form of training. They’ll also need a place of their own. Regardless of whether they’re renting or buying, that’s going to mean a deposit. They may also need a car.
How to Build a College Fund
There are basically two keys to building a college fund for your child. The first is to save as much for them as you reasonably can. The second is to deploy those savings in the right way. Even if you’re on a low income, there are often ways to make savings if you really put your mind to it. Remember, they don’t have to be major savings. Over time, small amounts add up.
How much they add up to (and how quickly) depends on how well you deploy them. As a rule of thumb, if you’re intent on saving a significant amount for your child, it’s best to get help from proper wealth management firms. You can, however, learn a lot about basic investment strategies from free resources both online and at your local library.
The Basics of Growing Your Savings
If you start saving for your child when they are a baby then you’ll have nearly two decades to build a college fund for them. In principle, therefore, you can think very long term for the first decade or so of their life. You’d then start to shorten your horizons as they get closer to adulthood.
Both the stock market and the property market tend to do very well over the long term. They are, however, only usually suitable options if you’re sure that you can commit to them for an extended period. That means at least 5-10 years.
The main reason for this is that they can experience serious downturns. These tend to be short-term and experienced investors just grit their teeth and ride them out. This is, however, only possible if you can do without the money until the market improves.
With that in mind, if you’re still getting your finances in order after COVID19, your best option might be to keep your savings in a regular bank account for the time being. That way, you can dip into the fund if you really need to. Hopefully, you’ll be able to replace it later. Then, when you’re ready, you can look at serious investment.
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About the Author
The Stay Sane Mom Staff
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Occasionally we post blogs that are a team effort from The Stay Sane Mom staff. Fear not, these are still up to our quality standards, they just don't come from any one person (rather the team at large). As my 4-year-old says, teamwork makes the dream work.