by Felicia Hodges
Life with children is not for the faint of heart - or wallet. The cost of rent or mortgage, insurance, car payments and food being what they are, taking care of your family’s basic needs can put a strain on almost any budget. You want to start squirreling away at least a little something for your future retirement and your children’s pending college costs, but how?
“The balancing act is a tough one and may [people] struggle to find a way to make it work,” says Jennifer Ridley Hanson, Director of Financial Planning for Financial Finesse, an agency that educates women on how to better invest and save money. “Sending your children to college is an important goal for most couples, but so is retirement.”
But where should you begin? Is saving for both even possible?
Ridley Hanson says it is. The trick is to make it a part of your monthly routine.
“Many people make the mistake of waiting until all of the monthly bills are paid and then they save what - if anything - is left over,” she says. “The problem with this strategy is that there may not be anything left over, or leftover money can get spent on something else.” If you have budgeted all you can and there really isn’t anything left, Ridley Hanson suggests you re-evaluate your spending and cut away what is not absolutely necessary. “If you don’t get into the savings habit now, it will not get any easier in the future and you’re losing valuable time for your retirement and college investments to grow,” she adds.
Never Too Late to Start
Whether you child is 16 days old or 16 years, most financial experts
say it is never too late to start saving for college. The same is true for your retirement.
“Any amount of money - no matter how small - saved today, will have a
greater value tomorrow,” says Michael Darne, Director of Business
Development at Wiredscholar.com, a site produced by Sallie Mae for
college-bound students, their parents and guidance counselors.
"Investing just a few dollars a week from the time a child is born can
grow significantly over 18 years. If you can’t put away as much as you
think you will need, don't give up. Something is better than nothing."
“The best way to begin is to think about what you can realistically accomplish based on your current situation and time frame,” Ridley Hanson says. “If you’re 55 and want to retire at 60, it may not be possible to save $1,000,000 in [that time]. Look at what you can really save and then look at the best way to save it.” She adds that Traditional or Roth Individual Retirement Accounts - savings which are retirement savings vehicles with tax benefits - are good vehicles to use if you don’t have access to a retirement plan at work or you are self-employed.
Also realize that you may not be able to do it all as far as saving for college goes, nor do you have to. According to The College Board, 40% of students in four-year schools contribute less than $4,000 towards college costs while almost 70% pay less than $8,000. Much of the balance is paid via financial aid, grants, loans or by the students working between or after classes. The US Department of Education says that almost $75 billion in grants and loans is awarded annually.
“Kids can work their way through college, but Mom and Dad can't work their way through retirement when they are 80 and 90 years old,” Ridley Hanson says. “Parents who sacrifice their retirement savings in order to send their kids to college may become financially dependent on those kids in the future if they don’t have enough for themselves.”
For some families, college and retirement can come around at the same time. If that is your reality, you can invest in a general investment pool which can be tapped to pay for each goal as needed. Listed below are some of the most common vehicles families just like yours look to invest their savings. Be sure to speak with a financial planner, tax advisor or other financial expert for more information on what would work best for your family’s needs.
Mutual Funds - These funds are issued via shares from an investment
company that is obliged to redeem or repurchase them from the owners upon demand. Look for a fund with a good track record and low expenses.
Savings Bonds - Generally considered relatively safe investment
vehicles, savings bonds are fully backed by the US Government. Their
rate of growth is relatively slow (maturity takes a number of years) and may not yield enough not keep up with the rate of inflation if used by themselves.
Traditional Individual Retirement Account/Roth IRA - Traditional IRA
contributions may be tax-deductible depending on your income. Withdrawals from either IRA can be used to pay for qualified higher education expenses without the 10% IRS early withdrawal penalty.
Section 529 Plans - Many states now offer college savings program lets you put money away (as little as $25 to open) then transfer your investment to any accredited college or technical school in the country.
Remember, saving a little is better than saving nothing. The sooner you start, the more you’ll have when you need it.
For More Information:
Financial Finesse - This company helps educate women on how to better invest and save their pennies through their national seminars, a radio show and web site (www.financialfinesse.com).
www.wiredscholar.com - an inclusive on-line resource for college
preparation that features evaluation, selection, application and
financing. It also features savings calculators to help you figure out
how much you should save and how much you will need in the future.
"Get Ready for College" - a college planning guide for parents of
younger children available from Nellie Mae, the nation's largest
non-profit provider of student loans. Call 1-800-9-TUITION for a free
copy.
Felicia Hodges is a writer/editor from New York.
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