Top Tips on How to Save and Invest your Money for College

Top Tips on How to Save and Invest your Money for College

With tuition fees consistently rising, it is becoming increasingly difficult for young people to get a college education. While there are college grants and scholarships, the level of competition for these places is insane; getting a student loan is also not an easy job.

The Spiralling Cost of Tuition

According to the College Board Report, students doing a four year course at a private college can expect to pay (in tuition fees, boarding, and lodging) about $38,589 in the year 2011-2012. On the other hand, students at a public institute paid about $17,000 for the same course.

College fees are rising even faster than inflation. In the last five years it has been noted that tuition fees have risen 5.6% while inflation just 3%. There is no way to exactly predict the increase in cost but it is estimated that the cost of private education will be $200,000 by the year 2016.

#1 Option – a 529 College Savings Plan

If as a parent you want to save at least a part of the funds for your child’s education, the best place to start is 529 college savings plan. This plan is popular as it helps you save on taxes as well. As longs as the money is used for education related purpose such as tuition fees, boarding and lodging etc you need not pay taxes when the amount is withdrawn.
Investing in a 529

The 529 should be created as a custodial account. It should be in your name with your child as your beneficiary. Begin by determining a dollar amount required for the college education of your child and invest accordingly. You can make use of the online college fee calculators to help figure out the amount you need to save. As the amount saved in 529 is exclusively for college education it is very important to get the numbers right as you do not want to risk over-saving.

But what happens if you do over-invest? If the money is withdrawn for a non-college expense then, a 10% penalty is imposed on top of the regular income tax on the earnings. The beneficiary can be changed to another child though to prevent incurring the penalty. The best strategy to avoid a shortfall of funds or investing excess funds is by using other investment plans that can be used for college expense as well.

Other Investment Ideas

Apart from 529s there are many other investment plans that will help you save effectively and could offer many ancillary benefits as well.

1. Roth IRAs

Roth IRAs are retirement accounts that are similar to traditional IRA but here you can withdraw contributions made for any purpose without any penalty being imposed.

Earnings can also be withdrawn without incurring the 10% early withdrawal penalty but only if it is used for educational purposes. Tax will be imposed on those earnings if the withdrawal is more than the total contributions however.

2. Permanent Life Insurance

Permanent life insurance is a plan where there is an insurance component and a cash component that can be withdrawn or borrowed. The additional perk is that the cash value of the life insurance policy is not considered as a liquid asset when the college determines the financial aid that your child is qualified to get.

When the money is borrowed against the cash value, tax need not be paid. But, interest on the loan has to be paid. You can borrow against the investment component to get a portion of the investment tax-free; but, if you make a withdrawal you will have to pay taxes on your earnings.

Permanent life insurance policies are complicated hence the various available options need to be reviewed carefully. It is better not to invest in a life insurance as a saving component unless you have the need to do so.

Permanent life insurance is also not a liquid investment. They usually have a particular time period in which they have to be paid or else one would have to pay a penalty. The ramifications on borrowing and withdrawing from the life insurance before taking out money from it to pay for the college should be understood before investing.

3. Fixed Annuities

Fixed annuities are those from which you can withdraw during retirement or alternatively receive a fixed income. Fixed annuities will not count against you when being assessed by colleges for financial aid as they are classed as retirement savings. The downside is that the IRS charges a heavy penalty for early withdrawals. You will also likely incur a penalty for tapping into the fund during the initial surrender period.

However if you are more than 59.5 years old when your child is attending college, the annuity can be a great choice as it is long out of the surrender time by the time you tap it. But, if you are not 59 years old then the annuity is likely a very poor savings instrument for any other purpose than your retirement.

This was a post by James from Broker Review – a user driven stock broker comparison site. Click here to check it out the popular Scottrade Review!

Life-long Friends Start in College

Life-long Friends Start in College

When you go to college, you will probably not know anyone. You will have a roommate but you want to meet new people so that you can have someone to hang out with during the weekends or even have a study buddy. Meeting new people may seem scary at first but there are many ways to do it! When you go on campus, you will have the opportunity to break out of your shell. Want to know how to make new friends? It’s really easy!

Meet New People

When you go to college as a freshman, there are many ways for you to meet new people. Colleges offer on campus events for students to socialize with other new students. If you want to meet some new people, head out to one of these events. Highlighter parties are a great way for you to have a great time and make friends. There are many clubs on campus, so if you want to meet other students who like and enjoy the same things you do, you could join a club. If you enjoy skiing, you could join the campus ski club to meet other people who love to ski as well. If you want to make a difference, you could  consider joining a sorority or fraternity. By joining a frat or a sorority, you will be meeting new people, making new friends and having a support system for life. If you want to join a frat or a sorority, you will have to go to events during rush week, which is usually the first week of the new semester. You will meet the people in that group and see if it is a good fit for you. If you think it is, you will be able to apply to become a member and if the sorority or fraternity bids on you, you will go through the initiation process. Another great way to meet new people while you are away at college is to take on a job. You can work on campus or off campus. On campus jobs are available to students and you may be able to work in the library or even the dining hall. While you are working, you will get to talk to some other students working there and you may find that you have some things in common. Making new friends isn’t hard at all!

It’s Not Hard

When you go to college, you may find that it is scary to not know anyone, but meeting new people is not hard at all. When you think about it too much, it can seem intimidating, but all you have to do is go to some campus events and socialize. Join some clubs if you want to meet other people with the same interests as you. If you want to, you can get a job and meet people that way. All you have to do is break out of your shell and be yourself! You’ll make friends in no time.

Image credit

Five Tips for Avoiding Consumer Debt in College

Five Tips for Avoiding Consumer Debt in College

Although some people are able to fund college entirely with their own money and grants, most people graduate with at least a little student debt. Paying off student loans can take years and set you back financially when you enter the workforce. You don’t want to compound the problem by adding consumer debt to the mix. Credit cards have high interest rates and can easily seduce shoppers into living beyond their means, causing major financial strain. Here are a few tips for getting through college without relying on credit:

1. Understand how interest works.

It’s hard to appreciate just how ruinous credit card debt can be without knowing how interest is compounded. Take some time to learn about credit cards and see how the interest can quickly multiply a purchase beyond its original price. Seeing actual figures will really help to put things in perspective.

2. Make a budget.

Tracking all of your expenses might not sound like much fun, but it’s the first step to taking control of your spending. Don’t think of it as a way to limit yourself; think of it as a way to make sure you can afford the things you really want. Write down all of your expenses and set limits for how much you will spend in a given month on certain categories. When you reach your limit, you have to stop spending or take the money from another category. This way you’re sure to only spend the money that you have without borrowing.

3. Use layaway.

Instead of financing purchases, save up for them or use layaway programs whenever possible. By saving up for a purchase a little bit at a time, you can be sure you’re not paying more than you need to for expensive interest rates or hidden fees. You can also save money by buying used goods or finding low-price alternatives to expensive brand names.

4. If you do get a credit card, make it a good one.

You may never get as many offers for credit as you do in college. Take advantage of the variety by choosing a credit card with a low interest rate, reasonable spending limit and no annual fees. Maintaining this one single line of credit will help improve your credit score and make it easier for you to get a car loan or mortgage later.

If you are still strapped for cash after attempting the aforementioned tips, then it is time to consider online school. Web-based colleges allow you to not only learn on your own time, but also to save a significant amount of money on room and board, travel, supplies, and sometimes even tuition. Most brick and mortar universities allow online credits to go toward their degree, so it can’t hurt to see if this option will work for you. Requesting more information is free and it can make the difference between a successful career and crippling debt, so don’t hesitate to look into it.
5. Always pay off your balance.

If you have a credit card, be sure to pay off the balance of your purchases every month instead of carrying a running balance on the card. This will keep interest prices down and looks great on your credit score.
Credit card companies frequently target college students with appealing offers, and it can be hard to resist apparently free money when you’re a struggling student. Don’t allow yourself to be lulled into accepting all the credit card offers you receive, though. By learning to live within your means in college, you make the first step toward financial freedom for the rest of your life.

Three Things About My Finances I Wish I Could Tell My College Self

Three Things About My Finances I Wish I Could Tell My College Self

As we move through life, we sometimes find ourselves thinking about what we would have done differently if given the chance to do it all over again. One area that I find I think about most is in relation to finances.

Although little can be done today about the what-if’s of yesterday, if I had the opportunity to teach my college self anything, it would have to do with how to better handle finances. It really is true that the decisions we make early in life, can have a major effect on how we live in the future.

Stay Out of Debt

The best piece of advice I would give to my college self would be to stay out of debt. It seems that college students are prime targets for credit card companies. The lure of easy money and the ability to purchase things without actually having to have the cash available to do so is a hard temptation to resist. If you must have a credit card, click here first to compare interest rates and terms.

Credit card debt, however, can lock you into years and years of increasing payments if it isn’t put under control immediately or better yet, not entered into at all. Many students today are leaving college with debt from both student loans and credit cards putting them already behind the 8-ball before they even earn their first real paycheck. Therefore, it’s important to steer clear of debt. Otherwise, you could find yourself spending the next decade or longer just trying to pay it off.

Start Saving Early

Although saving money is the furthest thing from most college students minds, it is essential to get into the good habit of setting at least some money aside on a regular basis. By initiating this habit early in life, it is likely that you will continue to practice good savings habits throughout your entire life. And this is essential if you want to live a comfortable lifestyle in retirement or even before.

Nobody ever said that you had to wait until you turn 65 to retire. And, by starting to save money early you could very well have the opportunity to retire at an age much younger than 65. A nice nest egg will give you the choice of how and where you want to live and the first step to getting there is to begin saving at an early age even while still in college.

Purchase a Home

As a college student, buying real estate was nowhere close to being on my radar screen. In fact, even the idea of renting a small apartment was iffy. Back in those days, though, it was certainly great to have my own place – even though, unfortunately, it really wasn’t my place.

The apartment I rented belonged to my landlord and that landlord collected rent from me, as well as all of his other tenants month after month after month. Because of that, I helped my landlord build equity in his property and to move closer to owning the property free and clear.

Over the years, I’ve realized that if only I had purchased my home earlier in life, I too would have equity built in that property and would likely be very close to owning the property free and clear.

One reason that many young people shy away from purchasing a home versus renting is that they feel they don’t have enough money saved for a down payment. But, with today’s first time home buyer deals, coupled with low interest rates, owning a home could be much easier than you think. If you are able to lock into a low fixed rate mortgage, you may even end up paying far less in mortgage payments than you would to rent an apartment that is owned by someone else!

For those who are in college today, the financial picture in the economy is far different than it was in the past. But there are still great opportunities out there to save and invest – while keeping yourself as far away as possible from debt.

When not writing finance articles for blogs and online publications George Gallagher helps graduates find student loan consolidation with not-for-profit credit unions.

%d bloggers like this: