How to Avoid College-Savings Pitfalls

Since college costs these days are skyrocketing, how should parents prioritize their saving and investing plans? Here are some steps you can take to avoid making some common college-savings mistakes.

Instructions

Difficulty: Moderate

1. Set up an emergency fund. What if you have a job change or get laid off? It's critical to establish an emergency fund with 3-6 months' worth of living expenses to cover your family's basic needs.
2. Pay into employer-sponsored retirement plans. A big mistake many people make is reducing contributions to their employer-sponsored retirement plans in favor of investing toward a child’s education. Instead, you should try to contribute as possible into a 401(k) or 403(b) plan. Not only can you take advantage of any employer matches, you can also realize potentially significant tax advantages.
3. Take care of insurance needs. Many parents make the mistake of ratcheting back on life or disability insurance in order to save for a child’s education. But if something bad should happen, both college and a family’s basic needs could be jeopardized. Parents should save for college while simultaneously retaining insurance coverage.