No plan is without its flaws; unexpected events always come up, and without a solid plan these events can sometimes become real problems. Nevertheless, many of these problems can be prevented, and there’s no time like the present to make sure that you have a solid, but flexible plan for life’s surprises, the economy, and your own decisions.
One of the most common mistakes made when planning the financing of your education is not planning early enough. Parents should begin to plan and save from the moment their kids are born. It’s incredible how every day that passes without saving, you lose potential savings. You should begin saving immediately, even if it’s just one dollar at a time. Besides this mistake, there’s also not choosing the appropriate savings plan. The 529 plan and the Coverdell Education Savings Account aren’t the only ways to save, and both serve a different demographic of parents.
Another mistakes is not applying for student loans, and omitting them from your paying for college strategy. These loans have many advantages for students; for example, they have a very low interest rate and many are subsidized by the government. What’s more, when you complete the FAFSA, if you don’t request loans, you might not get other possibilities like federal and private aid, such as grants, thus losing money that’s available for you!
There’s also the error of thinking that the costs are fixed. When you begin your strategic plan to pay for your education, don’t forget that costs aren’t fixed; things increase in price with inflation, and what costs $100 today will cost $135 in ten years. This is even more accelerated when dealing with pension costs, which increase at about 6 percent annually. In this case, each $100 of the pension will be the equivalent of $180 in ten years. For this reason, it’s important that you begin to save early and take advantage of the investment advantages that you have with the Coverdell and 529 savings plans. In order to be sure that you cover this 6 percent of the increase in cost, you should look for a rate of return that’s greater than 6 percent. Naturally, you should always keep in mind the protection of your principal investment when choosing the products in which to invest. It’s preferable to have more than enough money than not enough. Finally, forgetting to constantly review your plan is a huge mistake, since things always change.
This is the best formula to face the problems in the future:
(1) plan early;
(2) choose the right savings plan;
(3) include student loans;
(4) consider the effects of inflation;
(5) constantly review your plan to ensure reaching your goal.