If you’re a parent, whether your children are just starting pre-school or are a few years into high school, chances are, college is on your mind. Aside from retirement, sending your kids to college is probably the largest expense you’ll incur over the course of your life. Depending on how many kids you’re planning to send off to school and whether you’re paying for public or private school, it may even end up costing you more than your house! It may seem like a daunting task, but there are a few things you can do to make affording college completely possible.
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If your kids are little, the number one thing you can do is start saving now. The power of compounding interest will help immensely down the road. Instead of buying toys and throwing big birthday parties, think of what that money could grow to down the line. Even better, let close relatives and friends know your goals so that their gifts go toward college, too. And make sure any gifts you receive go right to savings and don’t slip right into your regular checking account by mistake.
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Your kids are going to be making a decision about college at the age of 18, likely before they have a real handle on the financial commitment it requires. Be realistic with your kids about what you can afford. Encourage them to explore a variety of different options, including public schools and, if they are bright and high-achieving students, private schools that may be more generous with merit aid. Your children may end up taking on some student loans to finance their education but make a point not to leave yourself, or them, overextended as a result of their education. Being prudent about spending now will make a huge difference in both of your finances down the line.
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Take advantage of tax breaks.
If you have a state-sponsored 529 plan, you may be eligible for a state tax deduction on your annual contributions. It can be a great way to save some cash every year if you are planning to stash it away for college expenses anyway. This is particularly helpful in states with high income tax that also offer the state deduction, such as New York. A family earning $150,000 each year could save more than $600 on its annual tax bill by contributing $10,000 to a 529. Remember, every little bit counts — that $600 could be a semester’s worth of books!
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