When you bring your child home for the first time, the last
thing on your mind is how you're going to
pay for a college education
years from now. Yet it's never too early to start thinking about
how you'll finance your child's college expenses, and the earlier
you start, the easier it is to reach the ultimate goal.
Getting your bearings
Raising a child can be one of the most financially stressful things
you'll ever do. Infants constantly need new clothes to replace what
they grow out of. Whether you work and pay for day care or stay
home to care for your child, the added expense or loss of income
substantially reduces your disposable income. And even once your
child reaches school age, increasing costs can stretch the budgets
of even the most frugal families to the limit.
With all the challenges of paying for your child's current
needs, it's easy to understand how future needs get pushed to the
backburner. But with some simple tips, you can start on a simple
investing plan that will get your kid through college.
1. Start small.
A lot of people believe that if they can't save a big amount, they
shouldn't even both saving at all. But if you acknowledge the
limitations of your current financial situation and still make the
effort to do what you can, you'll have accomplished the single most
important milestone in saving for anything: setting aside that
For instance, go through your expenses from an average day. I'd
imagine that most people can find $1 to cut, whether it's buying
something they don't need or paying more than they need to for what
need. Put that $1 aside, and it's $30 per month, $365 per year, and
$6,570 over 18 years.
2. Keep building.
Now granted, $6,570 won't get your child past the first semester at
most schools these days, let alone years down the road. But you'll
find that because you've started saving, you already have the
groundwork in place to
build on that saving
further down the road.
In particular, identify opportunities for you to boost your
saving over time. Here are some ways:
- When you get a raise at work, earmark a small portion of the
raise for college.
- Take 10% of your tax refund every year for your college
- When unexpected windfalls come in, whether it's a work bonus
or something like proceeds from a garage sale, set part of them
aside for college.
Slowly but surely, that $30 per month will grow to $60, and then
$90, and so on. It's not easy, but before you know it, your college
savings will be much larger than it was.
3. Make low-cost investments.
Having worked so hard to save that money, the last thing you want
is to pay it over to Wall Street's finest. Luckily, you don't have
There's a huge number of complicated ways to
invest your college savings
. Do some research and you'll run across strange-sounding things
like 529 college savings plans and Coverdell ESAs, which you'll
learn more about in future articles in the coming weeks. For now,
though, informally setting money aside in an account you set up for
yourself is an easy way to maintain complete access to whatever
investments you want.
, Fidelity, and Vanguard offering commission-free ETF trading,
low-cost exchange-traded funds make the perfect way to get started.
For a child with 15 years to go before college, for instance, you
could consider an aggressive portfolio like the following, composed
entirely of no-cost ETFs from the relevant broker:
- For Vanguard: 50%
Vanguard Total Stock Market
) , 25%
Vanguard Europe/Pacific ETF
Vanguard Emerging Markets Stock
) , 10%
Vanguard Total Bond Market
- For Fidelity: 35%
iShares S&P 500
iShares Russell 2000 ETF
) , 25%
iShares MSCI EAFE Index
) , 15%
iShares Emerging Markets
) , 10%
iShares Barclays Aggregate Bond
- For Schwab: 50%
Schwab US Broad Market
Schwab International Equity
Schwab Emerging Markets
Schwab Intermediate-Term US Treasury
Of course, investing in stocks brings no guarantee that your
money will grow. But with safer alternatives paying next to nothing
stocks are the best game in town
-- and historically, they've responded to bad periods like what
we've seen recently by posting stronger growth.
Don't wait another day!
Times are tough, and saving for college is an easy thing to put
off. But by making even a modest start now, you'll set the stage
for a successful long-range savings plan.
Stay tuned each Wednesday in September and October as Dan
goes through the ins and outs of saving and paying for
True to its name, The Motley Fool is made up of a motley
assortment of writers and analysts, each with a unique
perspective; sometimes we agree, sometimes we disagree, but we
all believe in the power of learning from each other through our
started small and worked his way up. He owns shares of Vanguard
Emerging Markets Stock ETF, as well as all the iShares stock ETFs
Charles Schwab is a Motley Fool Stock Advisor
selection. The Fool owns shares of Vanguard Emerging Markets
Stock ETF. Try any of our Foolish newsletters today,
free for 30 days
. The Fool's
is as cozy as a soft, warm baby blanket.
Copyright © 1995 - 2010 The Motley Fool, LLC. All rights
reserved. The Motley Fool has a