You need a plan
If you want that child to go to college, you need to have a plan. The first thing you will need to decide is how you intend to fund an education and how much you expect that him or her will contribute. There is one rule of thumb constantly quoted called the “one third rule.” This is where parents save for a third of the cost of their child’s college, while intending to pay another third cost from current income while their child is in college, which leaves one third that the child will be expected to pay through their own scholarships, loans or earnings.
A 529 plan
One of the things that you might consider is getting a 529 plan. These plans are incentivized savings plans specifically for paying the cost of college. There are several different types of 529 plans, so you might want to talk with a financial advisor to find out which one would best fit your strategy.
If you believe a 529 plan isn’t right for you, you will need to choose other investments. However, don’t be overly optimistic in what you think the rate of return will be on those investments. One of our local entities got in big trouble because it had based its spending on a continuing rate of return on its investments of 8%. It’s almost impossible to get this kind of return unless you’re willing to do some risky investing. It would be better to count on an average return of around 4% over a 20-year period. You might do better than that but when it comes to investing, it’s always better to be conservative.
Find a CFP
If you don’t consider yourself to be an astute investor, don’t be afraid to ask for help. There are certified financial planners available that will consult with you regarding your investments in stocks, bonds or whatever. It’s best to choose a financial consultant who is a CFP (Certified Financial Planner). You need to find out in advance how you will be charged. Some financial planners charge by the hour, while others have a standardized fee structure. In either event, a financial planner can help you find the tools you’ll need to become a smart investor and how to map out your financial future. But before you sign up with a financial planner, do your homework. Make sure the person is honest and trustworthy. You might even ask for references. After all, you’re basically trusting your child’ s education to that person.