Importance of Education
Imagine you couldn’t read or write, how different your life would have turned? Could you be in the position that you are in right now without education?
Now let’s take a moment to appreciate our parent’s decision to provide us the education which gave us the power to read, write, and all the success we have achieved in our life. Life without education could have turned grim.
I sure can’t summarize the importance of education in one paragraph and hence I am making a hopeful assumption that you know the importance of education already.
Education is the key to unlocking the world, a passport to freedom.
Why save for Education?
Education costs money. I wish it had been any harder to answer that but unfortunately, education is getting expensive.
The average cost of education in 2018-19 for 4 years bachelor degree was around $28,123, you can find the trend here (NCES).
Looking at the numbers from the above study, I can assure you that future generations will definitely have to pay more for education. (At the same time I have great expectations from the governments that they will not let that happen.)
Education is more valuable than money, in the long run.
Why am I investing for my 2 years Kid's College education?
1. Education is a must
What I am today and how well I am doing today, wouldn’t have been possible without the education I received and I really appreciate my parent’s decision to pay for my college.
I want to do the same and provide a good education to my kid and support him financially whenever he is ready for college.
2. Education will be expensive in the future
Unfortunately, education will be expensive in the future based on the way college fees have gone up (NCES). We can’t predict how expensive after 16-17 years hence the sooner we start saving/investing the better.
3. I hate debts
I personally hate debts, I know some people will say it’s just 1% or 2% of interest on the paper but in my mind, I still owe 100% to someone.
In the USA, at the end of 2020, students owed $1.6 trillion in federal student loans and $1.7 trillion in private loans (read here). So If I have the opportunity to reduce that burden of debt from my kid then I will.
4. I and my kid have time on our side
In the fight against the amount of money needed for my kid’s college, I have time on my side.
If we save and invest $300 every month in an index fund with a 7% return for the next 16 years, we will have almost $105,680.43, (use investment calculator here). I am not sure if that will be enough but heck it’s a lot more compared to NOTHING.
If you are ready to save for your kid’s education then let’s dive into the where and how part.
What is college 529 Account?
A college 529 account is a saving/investing account for future education. You invest the money in this account, it grows tax-free and you MUST take out the money only for educational expenses.
Benefits of Collage 529 Account:
- It’s an investment account to grow your money for education
- the money grows tax-free
- Your growth will not be taxed as long as you use the money for educational expenses
Read more in detail about what is college 529 accounts are and different types of those accounts here (What Is a 529 Plan? | RamseySolutions.com)
How to open a college 529 Account?
You can open a college 529 account with countless brokerage account management firms or banks like Vanguard, Fidelity, Chase, USAAA, etc.
I am going to use Fidelity just for simplicity and also I want to consolidate my accounts in one bank. Steps should be fairly the same on all the platforms.
Here is the step-by-step guide from my personal, first-time, experience of creating a College 529 account for my kid.
What do you need to open a College 529 Account?
- SSN
- Tiny amount each month for your kid's future
- Willingness to take the first step now
Step by step guide to open college 529 account
1. Choose a bank/brokerage firm
I am going with Fidelity in this guide. Here is the fidelity link 529 Plans – College Savings Plans – Fidelity.
2. Fill out the form
- You will need an SSN
- Your address details
- Your bank details from which you would like to deposit the money
3. Choose the investment portfolio
With fidelity, you will get plenty of options to choose the funds, like age-based strategy, target-date funds, 500 index funds, best of all you can customize your portfolio. If you are new to index funds then read my post Best Index Funds for 2021 and the future.
- Here are all the funds offered by Fidelity Fidelity Investments – Fidelity UNIQUE College Savings Plan Performance
- You must consider the expense ratio
- Do your analysis on these funds and choose one which fits your situation
4. Autamate your investements
If you are on this step then you have done what most of the folks wouldn’t have even considered. You have secured your kid’s future and time to let it grow by automating your monthly deposits.
How to open college 529 Account on Fidelity.com?
Conclusion
Education is what has brought you here to this post, to the position where you are in your life, and it’s what will shape your future. Education will shape our next generation.
Education costs money and if we plan for our kid’s education well in advance, they will have one thing less to worry about.
A college 529 account is the best educational saving/investing tool one must leverage to grow tax-free money for education.
Use this post as a guide if you are ready to open a college 529 account, if you have any questions do reach out to me in the comments.
Education is what remains after one has forgotten everything he learned in school.
