Whether your kids are 5, 10 or 15, it's never too early or too late to start saving for their future. There are many small changes you can make now that will yield big results for your children's college funds.
I reached out to Jean Chatzky, bestselling author, finance expert and television commentator who is teaching a series of interactive, monthly, college-style online personal finance courses through "Jean Chatzky's Money School," and asked her what parents can do now to start saving for their kids' futures. Here are her five tips:
1. Save for your own retirement first. Why? "You've heard those in the financial world explain that there's plenty of financial aid for college, but no one is going to finance your retirement," Chatzky said. "In fact, your kids may end up having to finance much of your retirement if you prioritize their college expenses above your own future needs. They don't want -- or need -- that burden."
2. Split the difference. Struggling with guilt over putting yourself first? Sock some money away in a Roth IRA, Chatzky suggested. "You can use it for retirement -- and make distributions tax-free -- but you can also use it to pay for education expenses, if you decide down the road that you're all set for retirement but your kids could use some assistance," she said. "It's a good way to straddle the line."
3. Start small, but early. "You have 18 years -- give or take, if you started right away -- to pull this money together," she said. "And you have compound interest on your side. Which means that if you can spare just $50 a month, you could end up with more than $19,000 by the time college comes around -- and while I know education costs are sky high these days, your child can fill in the blanks with student loans, scholarships and grants."How do you scrape together that extra cash? Chatzky suggested limiting trips to the grocery store. "Shoppers who stop in several times a week buy about 54 percent more than they planned, according to the Marketing Science Institute," she said. "Make a list, visit once a week and you might save more than $50 over the course of a month."
4. Invest -- intelligently. "The above math involves a 6% return, which you can get by investing in mutual funds," Chatzky said. "Most 529 plans will offer an age-based investment option that automatically adjusts the amount of risk you're taking as your child gets closer to high school graduation. That way, you can ramp up your returns early on and tread carefully later, when you don't have time to make up for losses."
5. Beware of high fees. Speaking of 529 plans, they're likely your best bet here, she said. "Compare plans -- and fees, which will eat into growth -- at savingforcollege.com. Every state offers at least one option, and you may get tax breaks for contributing. If you don't, and you're not happy with your in-state option, go elsewhere. These plans keep the money out of your child's name, too, which is better for financial aid."
For more information and to enroll in "Jean Chatzky's Money School" visit jeanchatzky.com.