How to Save for Baby's Future

With the economy still sluggish and your baby expenses mounting, you're probably too concerned with paying for diapers to think about paying for college. But your bambino will be dwelling in a dorm sooner than you expect. Plus, financial experts predict that school will only get more expensive; by the time today's newborns are packing up their extra-long twin sheets in 2028, four years at a private university will cost almost $350,000, and state schools could set you back as much as $116,000.

Don't panic: You don't need to have all that dough in the bank to make your kid's college dreams come true. A more realistic plan is to divide your child's estimated college expenses into thirds and plan to save a third, pay a third from your salary each year your child is in college, and borrow the other third through parent and student loans. "This is a practical way to prepare," says Jeanette Pavini, a household savings expert with Coupon.com. "Of course, when possible, you should stash away more. And remember that you can adjust accordingly when life brings the unexpected." Whatever you do, don't procrastinate: The sooner you begin saving -- no matter how little -- the better.

How to start? By opening a 529 savings account. These state-sponsored tuition plans earn interest tax-free (the amount varies depending on how the funds are invested), and some states even offer additional tax deductions as well as benefits such as bankruptcy protection and direct deposit. Although 529 plans are backed by state governments, they don't require your child to attend school in-state, and you can invest in any state's plan, no matter where you live. You can use the money for tuition, books, computers, and other educational expenses and even transfer it to other family members. (Visit collegesavings.org for more information about these plans.)

Next, decide how much you'll earmark for this account. If you set aside $10 a week from the day your child is born until her 17th birthday, you'll have almost $14,000. If you can swing $25 a week, you'll have $34,000. Able to save more than $100 a week? You'll end up with close to $300,000, nearly enough to pay cash for The University of Fancy Schmancy. Pick whatever amount feels manageable now, and commit to increasing it gradually.

"Once you've decided how much to save, the hard part is over," says Brian McGuire, a certified financial planner in Chevy Chase, Maryland. "Then every time you or your partner gets a raise, put half the increase in your 529 plan and half in your 401(k)." One caveat: Never let saving for college trump saving for your own retirement. "Your child can take out loans for college, but you can't take out loans to pay for retirement," notes Lisa J. B. Peterson, president of Lantern Financial, a financial services company in Boston.

How do you find extra cash, and have a life? Try the tips on the following pages to fill your days with fun as you feed your savings account.