What would you do with an extra $80,000 if you won the lottery — save it, donate it or indulge?
We hope you chose saving for college if you plan on sending your child to higher education: According to most college cost calculators, that’s about how much a college education will set you back.
That’s assuming you’ve decided to take the more cost-effective route of choosing an in-state public school; opt for an out-of-state or private institution, and costs can triple.
Haven’t quite won the lottery yet — and aren’t really banking on it?
With the right planning, saving for college is actually doable.
Let’s break it down: Assuming your child is 8 and you have 10 years to save, you have to put away approximately $8,000 a year.
The first step is to start a 529 college savings plan: It works like 401(k) plans, letting you put away tax-free money for college through multiple investment options.
When your kids are young, the funds are placed in aggressive investments; when they get closer to college age, the money is switched to more stable options.
The second step is to get your kids to help contribute to the cause of their own college education.
Their contributions can add up, and taking an active role in making college a reality can teach kids financial responsibility, setting them up for financial success in college and beyond.
Here are some ideas for how your kids can start saving up, now till 18.
Ages 5-10: Envelope budgeting
A love of saving begins early.
Help your kids associate positive feelings with putting money away by using the envelope budgeting system: Lay out envelopes, and have kids draw pictures of things they want on them.
Use one envelope per want — one for a short-term goal like getting a special toy, for example, and another for a long-term one, like going to college to become an astronaut.
Figure out the total cost of each desire, how much of their allowance they have to save each week to make it happen and how many weeks it will take to reach their goal.
Then make a savings goal chart; every time your children receive their allowance and allocate it appropriately in the envelopes, put a sticker on the chart.
To keep up the excitement when it comes to longer-term goals, reward your kids for meeting financial milestones with special treats or privileges over the years.
Ages 11-15: Jobs for kids, such as paid chores, part-time jobs and babysitting
At this point — and maybe even earlier — you can assign kids extra chores that pay, from ironing table linens to assembling new furniture.
Be sure to also let relatives and neighbors who don’t have children of their own know that your child is available for extra work if they need help (e.g., mowing the lawn or cleaning the gutters).
Other significant sources of extra savings: babysitting and a part-time job.
The typical age to start babysitting is 12 years old (average pay rate: $10 to $14 per hour), and the minimum age for employment in most states is 14.
Per the Fair Labor Standards Act, kids can only work part-time at this point, so consider helping your child find a job for a few times a week.
Many restaurants and cafes could use the help, and you can also check with friends and family members if they know anyone who might employ your child.
Ages 16-18: Full-time job
At 16, kids can legally pick up a full-time job. Consider letting them work full time during summers and holidays, and continue part-time during school.
Saving for college slowing down as kids become teens and have more wants and — what they consider — needs?
A savings match can be a smart way to encourage your kids to continue setting aside a bit extra.
Kids should be required to save a standard amount each week, but if they choose to save more, you can offer to match it.
This will not just speed up the savings as college age looms near, but also give your kids incentives to not spend all their money on magazines, video games and movies.
A win-win for all!