Once you’ve made the initial investment in an education savings account, it’s time to broaden your savings approach. The next step is to think about how to save not just for your child’s education, but for other expenses that may come up along the way. Building a balanced financial plan ensures that you’ll be ready to cover both the educational and non-educational costs that can arise as your child heads toward college and beyond.
The Importance of a Multi-Pronged Savings Strategy
Saving for college doesn’t just mean filling up a single account like a 529 Plan. While that’s a fantastic start, there are other elements you need to consider to ensure you’re fully prepared. A 529 Plan is primarily intended for educational expenses, but there are a multitude of costs that can arise during your child’s college years that won’t be covered by this type of account. Things like travel, car purchases, rent, and even a laptop for school can’t be paid for with funds from an education savings account if you want to avoid taxes and penalties.
That’s where having a broader savings strategy comes into play. Here’s how you can approach it:
- Set Annual Savings Goals for Education: First, decide how much you want to contribute to your child’s education savings each year. This could be a fixed amount, say $5,000 annually, that goes into your child’s 529 Plan. This money is earmarked specifically for college expenses, allowing you to benefit from tax-free growth and withdrawals for eligible costs.
- Save Beyond Education: Once you’ve set aside money for your child’s education, consider saving additional funds in a separate account for other necessary expenses. This could be a general savings account or even investments that are more flexible. The key is to ensure that you have funds available for non-educational expenses when they inevitably arise.
The goal is to build a financial cushion that’s separate from your education savings account, ensuring that you’re not restricted to using funds for only education-related costs. A robust savings approach will give you the freedom to manage all aspects of your child’s college experience—both expected and unexpected.
Finding Extra Funds to Save for College
While creating a savings strategy is important, the next challenge is actually finding the money to save. Saving for college often feels like an insurmountable task, but the good news is that there are ways to make it easier by utilizing opportunities that allow others to contribute to your child’s future.
Think of saving for college as a pie—this pie is made up of several slices. These slices include your income, your child’s earnings (if applicable), education savings, student loans, and potentially other sources of funding. The key is to minimize debt by maximizing the contributions from other slices. Here’s where you can find some additional sources of funds:
1. 529 Plan Gifting: Make Every Occasion Count
A great way to increase your education savings without dipping into your own budget is by asking friends and family to contribute to your child’s 529 Plan during special occasions like birthdays and holidays. Instead of receiving traditional gifts, your child’s loved ones can contribute directly to their college savings.
This is a simple request to make. For instance, instead of a $25 toy that might break in a week, ask for a contribution to the 529 Plan. Over time, these small contributions can add up significantly.
You can even use a platform like Backer, which allows you to create a personalized webpage where friends and family can easily contribute to the 529 account online. This way, you’re able to receive contributions in a more organized and hassle-free way, while avoiding the clutter of unwanted toys or gadgets.
2. Cash Back Rewards to Fund College Savings
If you’re already making purchases with cash-back credit cards or through online rebate services, why not channel those rewards into a 529 Plan? There are several ways you can use your everyday spending to fund your child’s education.
For instance, Backer offers a Backer Bucks program, where you can earn cash-back rewards that are directly deposited into your child’s 529 account. This can be a great way to passively contribute without altering your budget or lifestyle. Similarly, credit cards like the Fidelity Visa Signature Rewards card offer 2% cash back on purchases, which can be directed into a Fidelity 529 Plan.
By leveraging your regular spending habits, you could potentially add hundreds of dollars to the 529 account each year, without feeling the pinch of new expenses.
3. Scholarships: Encourage Your Child to Get Involved
As your child gets older, they can start contributing to their own college savings by applying for scholarships. Scholarships are a fantastic, often overlooked, source of funding that can significantly reduce the burden of college expenses. What makes scholarships even more attractive is that most applicants don’t take full advantage of them.
The trick to winning scholarships is consistency and attention to detail. Many scholarships don’t receive a large number of qualified applicants, so your child’s odds are often better than they think—especially if they follow the directions carefully and put in the effort.
Encourage your child to apply to as many scholarships as possible, aiming for at least 10 applications per year. Over the course of high school, this can add up to a substantial amount of money for their education. Applying to scholarships can also teach valuable skills like writing, organization, and time management, which will benefit them well beyond their college years.
Conclusion: Building a Comprehensive College Savings Plan
Saving for your child’s education doesn’t have to be overwhelming. By following a step-by-step strategy—starting with the basics of education savings accounts and expanding to other savings methods—you can create a well-rounded financial plan that minimizes debt and maximizes resources.
The key is to start early, stay consistent, and take advantage of every opportunity available to you. Whether it’s asking for contributions to a 529 Plan, using cash-back rewards, or encouraging your child to apply for scholarships, there are many ways to build the savings you need. With the right plan in place, you’ll be well on your way to ensuring your child’s education is funded without compromising your own financial future.
