As thousands of high school graduates prepare for college, more than a few households are coping with "sticker shock" when it comes to higher education costs. And many students are leaving universities not only with a degree, but a mountain of debt.
However, decades of student loan payments don't have to be in store for you or your child. With smart, long-term planning, this financial fate can be avoided.
Regardless how far in the future your first tuition payment lies, consider these steps toward establishing a financial cushion:
• Do your homework on college costs: While it's hard to predict future college costs, choose a school that might be an option and plan on an annual tuition increase of about five percent to get a ballpark idea. Don't be dissuaded by the amount you may have to save -- with time on your side, much is possible.
• Budget for savings goals: Prioritize future college expenses as a monthly budget line item. The sooner you start saving the better, because even small amounts of money invested early can grow quickly through the power of compound interest.
• Consider safe, secure growth: Investigate options where your money can grow safely and securely, such as CDs. Also look for a bank with competitive interest rates and no maintenance fees, such as Ally Bank, which compounds interest daily and allows consumers to open an account with no minimum deposit.
• Set up a dedicated account: Create a college savings fund and pass the word to family members and others who may be interested in pitching in over time. Many banks allow customers to nickname accounts, such as "Billy's college fund" and offer the ability to "link" individuals to make deposits into such accounts for those who prefer to give a gift with lasting value.
• Automate your savings: Use direct deposit or recurring fund transfers to put a portion of your income into college savings automatically. With every raise or bonus, increase this amount.
• Divert unnecessary expenses: Premium cable channels, magazine subscriptions and fast food can be considered extra and might be better spent when put toward a college fund. For more budgeting tips, visit AllyWalletWise.com.
• Investigate all your options: See if your employer or state offers tax-deferred savings plans for college. Take advantage of opportunities that are right for you and your family.
• Preserve other savings: College is expensive, but students have more sources of money for college than you will for retirement, so don't dip into your 401(k) or other retirement savings. Many accounts charge a penalty for access and you'll be harming your own possibility of a comfortable retirement.
Don't wait until your child is graduating high school to worry about college expenses. The sooner you start planning, the better position you'll be in when this critical time arrives.