Assess your personal financial situation
Now that you have defined your savings goals, it is important to examine your finances and determine how best to achieve your goals. This entails primarily two steps:
- Examine your budget to determine how much you can afford to save
- Identify ways to save or earn more money so that you can apply it to the college savings plan(s), if necessary
Examine your budget
Whether you decided to save a fixed amount or a fixed percentage of your income, it is imperative to ensure that it is reasonable and affordable. First, make sure that you are not trying to save money that you need to live on or to pay your bills. Putting new purchases on a credit card charging 18% just so you can save for your child's education is not going to help anyone. Carefully examine your budget and select an amount that is affordable. If you don't have a budget, it now is the time to create one.
Second, make sure that you are not sacrificing other priorities, like a new home or your retirement, just to put money away for your child's education. Worst case, you would be able to use these assets to fund college, so don't make college savings your top priority. Besides, your child may earn a full scholarship and not need your savings, or he/she may even decide that college is not right for them. Save money certainly, but make sure that you are taking care of your financial needs first.
Find more money to fully fund your goals
If you feel like you need to save more for your child's education, without sacrificing your other priorities, there are two options: 1) find a way to save money, and 2) find a way to earn more money. Carefully examine your budget to identify places you might be able to save money. If it has been a while since you kept track of your daily expenses, do it again. We have worksheets in our budget section that you can use to detail these expenses. After recording them for a month, you might be surprised how many ways you can find to save that $1 a day that will fund your child's education. If you still can't find ways to save enough, you might consider a part-time job. Even working just a few hours a week could make a hugh difference in your savings plan, and not dramatically impact your life. Just make sure that if you choose this route, that you use the money from this job to fund the college plan.
Step 6 - Develop Your Plan