It's never too soon to start saving for your kid's college bills
We applaud parents who open college funds for their kids before they're even out of diapers.
The earlier you start saving, the longer your investments have time to grow.
If you wait until your child is 10 to get started, you'll have to put far more money into the account to achieve the same result. And the reality is, you won't be able to save all you need for college bills.
Let's say you open your newborn's college savings plan with $500 and contribute $100 per month until she's 18.
If those savings grow at 7% a year, your child will have more than $45,000 by the time she graduates from high school. If you can swing $150 a month, she'll have more than $67,000. And with $200 per month, she'll have almost $90,000.
That might not cover the full cost-of-living expenses and tuition for a four-year degree, but it will likely cover a large portion of it.
Your baby needs a 529 plan or Education Savings Account that allows your college savings to grow tax-free (as long as it's ultimately used for educational expenses).
There are two types of 529 plans:
Savings plans work much like a 401(k) or IRA by investing your contributions in mutual funds or similar investments. The full value of your account can be used at any accredited college or university in the country.
Prepaid plans allow you to prepay all or part of the cost of an in-state public college education. These plans will allow you to transfer the value of your contract to private and out-of-state schools (although you may not get full value, depending on the state).
Being a good parent not only takes a lot of love and patience, it requires a lot of thoughtful planning and spending.
Our 6 smart moves to financially prepare for parenthood can help you make many of the right decisions.