Investment Strategies: Saving For College

And you thought a house was the most expensive thing you'd ever have to buy. Average college tuition has gone past the $30,000 a year mark. It's almost an insult. That's $120,000 for a four-year term, never mind graduate school. That's more than some homes. College tuition is going up faster than the rate of inflation and you certainly don't want to turn that tuition amount into personal debt. What is with this? Are teachers driving around in Maseratis? The education is the same as 20 years ago; it just costs a whole lot more. It almost makes you not want to go to college just to spite them. Here's the "real" reason. There is less government money coming in to colleges, so they have to offset it through tuition increases. Also, there's a general rise in health care and utility costs. Finally, teacher's salaries are increasing. While they aren't driving around in Maseratis, they are driving around in really, really nice Volvos. Dropping out or not enrolling is not really an option. College is necessary for entering the job market. College is the new high school. And the education is important, if you don't spend four years getting drunk at frat parties. So how can you possibly save up this huge chunk of change, especially on top of mortgage payments, car payments and everything else? Ways to Save for College. The way to save for college is the way to save for anything else: start early. It seems absurd to save for college when your child is still breast feeding, but look at it this way, if college tuition is going up at this rate today, you're looking at $50,000 tuition when you're baby's all grown. If that doesn't scare you into saving, nothing will. The earlier you start, the more you'll save. At 10 percent interest, you'll have amassed a fair amount of the tuition by the time a baby turns 18. OK, you've started early. Started what? Even putting money into a money market account is not going to have the greatest turnaround on the investment. You might have to make a gamble or two. Invest in a high-risk, high-reward investment, especially early on in the child's life. You don't want to blow all the money when college applications are in the mail. As the child gets older, put the money in something more stable, such as a money market account, using a 529 college savings plan. As mentioned here, tuition is going up faster than inflation, so you need something at least with an eight percent payout, i.e. slightly higher than tuition is rising. As with any investment, diversification is key: don?t put all your eggs in one basket. If one high-risk investment fails, you don't want the whole financial house to come crumbling down. Aside from investments, just set aside a few dollars here and there to put into a college saving's account, whether it's once a week or once a month. Don't think about withdrawing money from an IRA, because this is taxable money. Really, you need a whole separate account for college-only expenses. Don't forget about alternate funding methods either, especially student loans. No one said having kids was easy, and now you can add incredibly expensive to the list. Financial directory