Start ASAP. Don't have a lot of disposable income? Not a problem. "New parents can begin at a bank or credit union and start a savings account with the minimum balance, says Greg Meyer of Meriwest Credit Union in San Jose, CA. "Typically, credit unions have very low minimums, often in the vicinity of $20 or less to open a savings account that will have no fees. This makes it easy for young parents to get started."
Pay yourself first. "Your child's college savings account is not the most important savings bucket to fill," says Farnoosh Torabi, host of Financially Fit on Yahoo! Finance. "Make sure your rainy day/emergency fund and retirement accounts are well filled before allocating money to college savings. The fact is, college lasts four years, while retirement lasts 30+."
Save, then spend. Once you've established your budget, pay baby every month just like you pay your other bills, says Darren Scrimpshire, CRPC, a managing partner with Sapient Financial Group in San Antonio, TX. "If you wait to see what's left at the end of the month, chances are there'll be nothing left."
Look into a 529. The 529 savings plan is a state-sponsored tax-advantaged savings plan and every state has at least one type of 529 plan, explains Torabi. "It works much like a 401(k) or an IRA where your money is invested in mutual funds. It is free from federal taxes and many states offer state income tax deductions for all or part of the contributions made by the donor. Withdrawals must be used for school expenses including tuition, room and board, textbooks, supplies, fees, etc." According to a survey by Fidelity Investments, parents who save in a 529 plan can afford to pay for 36 percent of the expected college expenses. You can buy a 529 plan either directly from the state of through a broker.
Sign up with Upromise. By creating a free account with this site, you can earn Get 1%-25% back from eligible purchases at more than 800 online retailers when you shop through Upromise.com. You can also earn rewards at participating restaurants, grocery and drug stores. You can then transfer any money you earn to a high-yield savings account or a 529 plan. "It's not going to be a lot of money, but it's something," says Adam Koos, president of Libertas Wealth Management Group, Inc. in Columbus, Ohio.
Be realistic. The entire financial burden of college shouldn't be solely on you and your spouse, says Torabi. "Between attending an affordable school, scholarships, grants and working part-time, your child should be able to help pay his or her way through school, as well. The financial burden is not all yours. Do as much as you can, but don't compromise your other financial needs because of it."
Get life insurance. Life insurance can be a major financial life preserve for your children, as it will be a source of income for them after you pass. "There is no 'one-size-fits-all' way to calculate how much life insurance you need, but you can get a solid estimate by analyzing your family's financial needs," explains Torabi. "Calculate how much replacement income your family or dependents will need in order to maintain their current lifestyle."
Copyright © 2012 Meredith Corporation.