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PREP SCHOOL FOR PARENTS: PLAN FOR COLLEGE NOW
Lori Bahnmueller
Michigan Credit Union League - Your Money Matters


Even if you're a new parent with your baby sleeping peacefully in your arms, you may have thought "How am I going to pay for their college tuition?"

While the answer may not be simple, the important thing to remember is that it's never too early to start saving for college. With dedication and planning, you can do it! If you start early enough, you won't even have to eliminate the word "vacation" from your vocabulary.

The average total cost of a year at public and private colleges has nearly doubled during the past two decades. As of today, the cost of tuition, room, board and mandatory fees for one year is nearly $6,824 at a state school and $17,630 at a private college. The four year totals are $27,296 for a state school and $70,520 for a private school and that doesn't include books, transportation or miscellaneous expenses. When it comes to prestigious schools like Harvard, it's like the old joke about buying a yacht. If you have to ask the price, you can't afford it.

Don't let those figures discourage you. The key is to start saving now but how much to save is a mystery to most parents. In Paying for Your Child's College Education, author Marguerite Smith offers a worksheet calculating the average increase of college tuition and current inflation rates. For instance, a two-year-old will need about $100,000 by the time he or she turns 18. If you start saving now, you will have to set aside $225 a month at an average return of 10 percent to reach your goal. If you delay until your child is ten , you will have to put away $725 a month to achieve the same result.

If these amounts seems impossible, begin with $50 or $100 a month and gradually increase the amount you set aside. When your child moves on to kindergarten, for instance, continue to deduct the child care from your budget and place it into the college fund. Save a portion of any salary increases you receive. When your old car is paid off; delay buying a new car and use the money you had been paying on your car loan to build your child's college portfolio quickly.

Once you've started saving, the next step is finding a way to achieve the highest yield on those savings. Selecting the right investment plan can take some time but a bit of research can make a huge difference and you don't have to be a stock broker to do it. Remember these tips:
* Rely on stocks in the years before high school. The younger the child, the more aggressive you should be. You'll have plenty of time to recover from market dips.
* Be wary of sales pitches which claim to offer a high-yielding, ultrasafe investment for parents. If it looks too good to be true, it probably is.
* Take advantage of mutual funds. Funds offer professional management, reduce risk, diversified securities and automatic reinvestment of return. You can usually start your plan with $1,000 or less if you have funds deducted automatically from your paycheck.
* Once your child reaches high school it's time to reevaluate.

But for the moment, as you hold your child in your arms, relax and enjoy. They'll be grown up before you know it. With the proper planning, so will their college fund.

 
   
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