According to a Georgetown University study, by the end of the decade over 70% of all jobs in the United States will require a college degree, or at least some college or post-secondary education. Whether it’s a 2-year Associate’s Degree or a full-fledged doctorate degree, some form of additional schooling in high school is probably in your child’s future.
Maybe you’ve already started saving, or you have trust funds set aside. But if you’re like most of us, you probably have not started saving for your child’s education.
Whether your child is 16 years old or 16 months old, you can start saving. Taking the first step can be overwhelming because there is so much information out there. Should I pick this plan, or that option, or talk to an advisor? It can be hard to balance saving for your child’s college while saving for your own retirement and trying to pay the bills now.
But if you can set aside at least a few dollars a week, you can help save for your child’s education. It may not seem like it, but even a dollar a day now can make a huge impact on paying for child’s future college or post-secondary schooling. It just takes $2.74 a day to make it to $1,000 a year.
When Should I Start Saving for College?
Start now. The cost of college rises about 8% ever year – compared to an average of 2% annual inflation. In 10-15 years, a 4-year college degree at most public in-state colleges will cost over $250K. Yikes.
Typically, the average student can cover almost half of the costs without having to get money from parents.
- 25% with grants (free need-based assistance and scholarships)
- 11% with student loans (federally subsidized)
- 8% with student income and student savings (including work-study)
The average student can get 44% of the way there. Generally, parent contributions make up the shortfall. Parents commonly raid their 401K’s and retirement plans, or take out private loans, to help cover the costs.
But if you could take the funds you’d use to make monthly private loan payments, and put them in a college savings account now, you and your child will come out miles ahead.
How Do I Start Saving for College with No Money?
You might have a very tight budget right now, or be completely broke. But if you can come up with $19.23 a week, or $2.74 a day, that’s $1,000 a year.
How to Save $2.74 a Day
- Cut out your daily Starbucks habit. If you can’t ditch it, cut back. Get free Starbucks gift cards and go to Starbucks every other day. Order a less expensive drink, or go down one size.
- Lower your data coverage plan. Public WiFi is everywhere. Use the free WiFi at your gym or coffee shop. (If you’re at Starbucks, keep drinking the free brewed coffee refills and using their public WiFi.)
- Stretch out your salon visits. If you get your hair cut or colored at the stylist’s, you don’t need to stop altogether. (You’ll feel miserable and resentful, and probably won’t stick with it.) Just stretch them out a little longer. If you go every 6 weeks, go every 8 weeks. (That’s 2 fewer visits per year, and probably an extra $50 to $300 a year you can stash away.)
- Use coupons, a savings app, or a gas loyalty program. Supermarket gas discounts may only be a dime a gallon, but with the average U.S. driver using 656 gallons a year, that’s an extra $66 a year.
- Eat out a little bit less. Telling most people to stop eating out, or that every French fry is like stealing from Junior’s college fund, might work for a little while. Like a couple weeks or months. But if you really enjoy eating out or drive-thru runs, this is not going to be sustainable. If you go to Shake Shack once a week, go every other week. Or order water instead of sodas or smaller sized fries. Find manageable ways to scale back your spend.
- Unlink you credit card. Unlink your credit card from Amazon and other shopping sites, and from food delivery apps like Uber Eats or Door Dash. I’m not saying stop shopping Amazon or ordering Uber Eats. If that’s your thing, you shouldn’t. But if you have to go get your debit or credit card and type or tap your digits in every time you want to order a burrito, you’ll think twice before you make that purchase.
How to Make $2.74 a Day
There are also plenty of ways to make $2.74 a day online – without ever having to put on pants or leave your couch.
- Rewards sites like InboxDollars or Swagbucks will pay you for completing different free activities online, like answering online surveys, searching the web, playing games, or scanning receipts. (They also offer cash back shopping rewards, but that is a rebate or bonus for shopping dollars spent.) If you just answered 2-4 surveys a day, you could reach $2.74. But there are other activities to sprinkle in.
- Gig economy sites like Fiverr. If you can write copy, design, or do other online tasks (like looking up a list of email contact info for someone), you can make cash from home. It’s best to set your rates low when starting out, and then you can increase them as you build up experience and positive reviews.
There are plenty of other ways to earn online, but I like sharing these two options because they seem so manageable. For many people, letting out their house as an Vrbo or Airbnb or becoming an Uber driver just is not appealing or realistic.
Use $2.74 a Day to Open a 529 College Savings Plan
If you’ve never heard of a 529 college savings plan, or don’t really understand them, that’s ok. In a nutshell, a 529 is a college savings account where your money gets a lot of interest.
Unlike regular savings accounts that see way less than 1% every year in interest rates (the average account has an annual 0.05% rate of return), 529 plans are investment accounts that see interest growth around 6% to 8% every year.
Money grows tax-free, and when the money is withdrawn for school or school related expenses, you don’t have to pay any taxes on the money’s growth.
There are hundreds of different 529 plans to choose from. I personally enrolled in MN Saves since it’s the plan sponsored by the state of Minnesota, but I could have enrolled in any plan accepting out of state residents. (Most plans do). With some plans you need $0 to get started, others require a minimum contribution of $5 to $25. I was trapped in analysis paralysis for a while, but then took what I thought was a good piece of advice: just select a plan in your home state. Just start saving. You can always change plans or make adjustments later.
Other Benefits of Having a 529 Plan
- It motivates me to continually save for my children’s college education. I’ll regularly tuck in a few extra bucks now and again when I think about it, in addition to my regular monthly contributions. Since opening a 529 plan my thinking has changed. It’s gone from “I really need to start saving” to “I should put an extra $10 into the college fund”. And I do it.
- Out of reach, out of mind. I know the funds are there – I can view the data digitally. But they’re note easily accessible. Unlike a coin jar on the nightstand or slush fund linked to my bank account, the college fund is a very separate. I know I can’t easily touch it so I won’t.
- In lieu of toys, please consider a contribution to the kid’s college fund. Having a 529 plan gives you a polite way to decline toys and other boxed gifts for the kids’ birthdays and other holidays. Every 529 plan will have some sort of gifting link you can share with others.
- There is flexibility. Having a 529 plan won’t hurt your child’s financial aid eligibility. And if my son gets a full-ride to Harvard, for academics or sports (are full sports scholarships even a thing at Harvard?), the 529 money isn’t lost. He can still withdraw funds from the 529 plan, up to the full amount of all scholarship awards, without paying any tax penalty. And if he doesn’t go to college, the funds can go to vocational school or online courses, or they be transferred to parents, siblings, cousins, or other close relatives to pay for their tuition and qualified education expenses. Unused money is never really “lost”.
529 Plan vs Regular Savings Account
You might have a traditional savings account at the bank. I’m not telling you to close it. I have one myself. It’s a rainy day fund in case I need extra cash right away. But it gets less than 0.10% in yearly interest growth vs the nearly 7% I see with the funds in my 529 plan.
If you set aside $1,000 a year (from that magical $2.74 a day) in a regular savings account, you would have $22K in 18 years. Put those funds in a 529 plan, you’d have a figure more like $41K. Essentially, you would have made money off of your money. You would have made over $20,000 from the interest.
Save Money for College – The Bottom Line
College is likely looming in your child’s future, and college price tags don’t show any sign of slowing down. If you set side at least $2.74 a day in a college savings account, your savings for college can grow to a tidy sum of $40K or more to put towards your child’s education.
Disclaimer: Nothing in this post is meant to be construed as direct investment advice. You should always consult a qualified financial advisor before making any banking or investment decisions. Past performance of 529 plan funds does not necessarily predict future results.
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