Moving from child care costs to saving for college
When the kids no longer need child care services, dedicate that money to college funding.
Is your child one of the millions of children in child care? If so, the cost is likely a significant line item in your budget. Reliable child care can be difficult to afford. According to recent research, the cost to send a child to daycare averages $340 per week.
Saving for college
Saving for college may seem impossible while paying for child care along with other fixed expenses, such as housing, utilities and food. However, there is light at the end of the tunnel. When your child begins elementary school and no longer requires full-time child care, you may see a significant increase in your discretionary income each month.
But before you convert those child care dollars into disposable income, consider investing in your child's college education. After all, you're already accustomed to living without that income. We have a college savings calculator that can be utilized to help determine how much to save for your child’s college education. Keep in mind, the average cost for both tuition and books can vary greatly depending on the school selected.
A number of investment opportunities are available that offer tax advantages while you accumulate funds to help pay for future education expenses. One is the Coverdell Education Savings Account (ESA), a trust or custodial account with a $2,000 annual contribution limit that can be used for your child's elementary and secondary education, as well as post-secondary education, such as college, graduate school or vocational school. You can invest in a Coverdell ESA account regularly, if your income is under a certain amount, with current year contributions accepted until that year's tax-filing deadline.
If you'd like to invest more toward your child's education, consider a 529 savings plan for qualified higher education expenses. Even if you don't contribute this maximum amount allowed by your state, it's a good idea to save smaller amounts every month or every paycheck.
A quality education may be one of the most important factors in determining your child's future. It's never too early to begin saving, and dedicating funds you previously used for child care may be a great way to start.