A glass jar labeled "Education Fund" filled with dollar bills sits on a wooden table. The blurred background shows a family scene, symbolizing saving for educational purposes. The FINNY logo is in the bottom-right corner.
A glass jar labeled "Education Fund" filled with dollar bills sits on a wooden table. The blurred background shows a family scene, symbolizing saving for educational purposes. The FINNY logo is in the bottom-right corner.
A glass jar labeled "Education Fund" filled with dollar bills sits on a wooden table. The blurred background shows a family scene, symbolizing saving for educational purposes. The FINNY logo is in the bottom-right corner.
A glass jar labeled "Education Fund" filled with dollar bills sits on a wooden table. The blurred background shows a family scene, symbolizing saving for educational purposes. The FINNY logo is in the bottom-right corner.
A glass jar labeled "Education Fund" filled with dollar bills sits on a wooden table. The blurred background shows a family scene, symbolizing saving for educational purposes. The FINNY logo is in the bottom-right corner.

How to Save for Your Child’s Education: 9+ Tips to Help You Get it Right

How to Save for Your Child’s Education: 9+ Tips to Help You Get it Right

Author:

FINNY team

Jan 6, 2025

Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or tax advice. Consult a licensed professional for personalized guidance. The information provided is general and does not account for individual circumstances. FinFinancial LLC does not endorse specific financial strategies or outcomes.

College tuition has gone up by 141% in just the last 20 years. And in 2024, a year at a public college costs 40 times more than it did in 1963.

But don't worry — you've got time on your side. With careful planning, you may be able to support your child's education while managing your personal finances.

Let's walk through some practical ways to make it happen.

1. Create a Separate Education Savings Account

One of the most important things you can do is set up a dedicated account for your child's education. Think of it as drawing a line around your savings — it helps you resist using that money for other things.

According to recent research, 62% of families use their current income to pay for college, while 35% tap into college savings funds. But having dedicated savings gives you more options when it's time to pay those tuition bills.

Here are your main choices:

529 Plans

529 plans are designed specifically for education savings and may offer tax advantages when used for qualified education expenses, subject to specific rules and limitations. The money may grow tax-free, provided it is used for qualified education expenses subject to specific regulations and conditions.

What counts as qualified? Here's what you can spend it on:

  • College tuition and fees

  • K-12 tuition (up to $10,000 per year)

  • Student loan payments (up to $10,000)

  • Apprenticeship costs

  • Campus housing

  • Meal plans

  • Books and supplies

And here's something new: starting in 2024, you can transfer up to $35,000 from a 529 plan to a Roth IRA for your child (subject to certain limits and regulations). This gives you more flexibility if your child decides not to go to college.

Custodial Accounts

These accounts let you save money in your child's name, and you can use the funds for anything that benefits them — not just education.

High-Yield Savings Accounts

These work well if you want easy access to your money and don't mind missing out on some tax benefits. You can use the money however you want, whenever you want.

Roth IRAs

You might be able to access your contributions without additional penalties, and unused funds could potentially be repurposed for retirement needs, subject to individual circumstances and tax laws.

2. Start Small, but Start Now

When it comes to saving, the hardest part is getting started. But here's a little secret: starting with $50 a month today is better than waiting until you can afford more. Why? Because time is your biggest advantage.

According to Fidelity's research, parents who start early end up way ahead - that same $50 monthly contribution turns into $16,600 over 18 years, versus just $7,550 if you wait 10 years to start. And while 93% of parents worry about rising college costs, starting early helps take the pressure off.

So, set up an automatic transfer today. You'll barely notice it, but your future wallet definitely will.

3. Build an Emergency Fund First

Life has a way of throwing unexpected expenses at us. And while saving for college is important, having an emergency fund is crucial.

Here's why: 35% of households making under $50,000 live paycheck to paycheck. Only 44% of Americans could cover a $1,000 emergency from savings.

Aim for 3-6 months of living expenses before focusing on college savings. This way, you won't need to tap into your child's education fund when life throws you a curveball.

4. Explore Financial Aid and Scholarships Early

Here's a surprising fact: 87.3% of college students get some form of financial aid. And while 56% receive federal grants averaging $4,983, many aid opportunities go unclaimed.

Even if your income is higher, don't skip the FAFSA. About 34% of undergrads receive Pell Grants, with awards averaging $4,491. Remember, aid calculations consider more than just income — family size, tax liability, and total college costs all play a role.

5. Understand the Real Costs of Education

College costs go well beyond tuition. Let's break it down: Tuition makes up 46.3% of total costs for students living on campus. The rest? Room and board runs about $12,917, books and supplies add $1,220, and additional expenses like transportation and personal care can hit $3,790 for students at public universities.

And don't forget pre-college costs — SAT prep courses alone can run up to $5,000. By the time you add everything up, extra expenses beyond tuition might exceed $5,000 annually.

Let's look at a real life college costs example: East Texas A&M University:

For Texas residents, the total is $27,686 per year, breaking down to:

  • $10,026 for tuition and fees

  • $12,100 for room and board

  • $1,152 for books and supplies

  • $2,472 for transportation

  • $1,936 for other personal costs

So while tuition might seem like a big expense, it's actually less than half the total cost. The "extra" expenses — housing, books, transportation, and personal costs — add up to $17,660 per year.

Use college cost calculators to plan ahead. After all, good planning now means less stress later.

6. Diversify Your Savings Approach

Relying on one savings method is like putting all your eggs in one basket.  Instead, consider a mix of tools: 529 plans, custodial accounts, or other alternative investments.

Consider a 529 plan for potential tax benefits and explore custodial accounts for flexibility, depending on your financial goals. High-yield savings accounts work well for short-term goals. Each option has its strengths, and using them together creates a stronger plan.

Remember to check what works for your family and adjust as needed.

7. Be Strategic About Debt

Student loan numbers might seem scary: the total U.S. student loan debt sits at $1.753 trillion, with the average federal loan balance at $37,853.

But smart planning now can help keep those numbers lower for your child. While saving is important, don't empty your retirement fund to avoid loans completely. Federal student loans with relatively lower interest rates may complement a balanced education funding strategy.

If loans are part of the plan, ensure your child understands repayment. Tools like the federal student loan calculator can help estimate monthly payments after graduation. 

The goal isn’t to fear debt—it’s to use it wisely and keep it under control.

8. Look for Tax Benefits

Did you know that many education savings accounts come with tax perks?

A 529 plan allows for tax-deferred growth and tax-free withdrawals for qualified education expenses, subject to IRS regulations. Some states even offer tax deductions or credits for contributing to a 529 plan. And these tax benefits work in different ways:

  • A tax credit directly reduces what you owe in taxes

  • A tax deduction lowers your taxable income

  • Tax-free growth lets your earnings grow until withdrawal

  • Income exclusions keep certain benefits tax-free, though you can't use these for other tax breaks

But 529 isn't the only way you can reap tax benefits. Consult a financial advisor or tax professional to maximize your savings while staying within the rules.

9. Adjust Contributions Based on Life Changes

Your financial situation changes as time goes on, from job changes to unexpected expenses to salary bumps, so be ready for everything from financial changes when you relocate to emergencies and promotions.  

With that being said, your education savings plan should change too.

Think about your monthly numbers. If you get a raise at work, adding even a small percentage to your education fund makes a difference. And when budgets get tight, it's okay to temporarily reduce what you save.

Looking at what works best, it's the regular check-ins and adjustments that really matter. 

Many parents find that setting calendar reminders every few months helps them stay on track. This way, they can make small tweaks rather than big corrections later.

10. Consider Side Hustles for Extra Income Sources

Sometimes, the best way to save more is to earn more. And you're not alone in thinking this way — more than 1 in 3 Americans now earn money through side hustles.

The numbers are pretty encouraging: Side hustlers make about $891 monthly on average, up from $810 in 2023. That's more than $10,000 a year you could put toward your child's education.

Dedicate your side hustle earnings specifically to your child's education fund — with compound interest, that extra income could mean thousands more by the time college rolls around.

11. Work with a Financial Advisor

The impact of working with a financial advisor is clear in the numbers. According to a recent study by Northwestern Mutual, people with advisors have saved twice as much ($132,000 vs. $62,000) compared to those without. 

A financial advisor could potentially assist with understanding various options including 529 plans, custodial accounts, or other investment tools, depending on your personal situation.

They can also guide you in balancing education savings with other priorities like retirement so you’re not shortchanging your future while planning for your child's. 

Plus, they can help you identify opportunities or avoid common mistakes, such as over-contributing to one account while neglecting another.

But let’s be honest: finding an experienced advisor who truly understands your unique needs can be challenging. That’s where FINNY comes in.

Consider revising to: 'FINNY aims to assist in the process by connecting you with a financial advisor based on your reported goals and situation.

It's a method that can potentially provide helpful guidance for your family’s future, depending on your unique situation and needs.

Saving for Your Child’s Education - The Bottom Line

Saving for your child’s education doesn’t have to be an uphill battle. 

The key is breaking it down into manageable steps—like opening a dedicated savings account, exploring tax benefits, or even boosting your income with a side hustle. 

Starting earlier may provide more time to grow your education savings and balance other financial priorities.

And in case you don’t want to figure it out alone, FINNY might help you find an experienced financial advisor who understands what you want to achieve and can potentially help you create a custom strategy. 

Book a demo below to learn more. Booking a demo provides an opportunity to learn about FINNY’s tools. It does not constitute financial advice or an obligation to use our services.

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