Ashley's Tip of the Day!

Now that you've got you're out of debt, and saving 15% towards your future retirement, it is time to start thinking about saving up for your children's education. Remember, you don't have to go into debt for your child to go to college. Start saving for their education once you've finished baby steps 1-4! Encourage them to get good grades, and help pay for their education through grants, scholarships and other free money.

Here are a few good options of ways you can save for your child's education:

* Education Savings Account (ESA): You may save $2,000 (after tax) per year, per child that grows tax free! Beneficiary must be under 18 years old. Money must be used for education purposes only. Otherwise, a 10% penalty and taxes will apply. Money must be used or rolled over to a qualifying family member by age 30 or a 10% penalty and taxes will apply. Singles with an income over $110,000 – or Married couples with an income over $220,000 are not eligible. * 529 Plan: If you do not meet the income limits for an ESA, or if you want to save money above an ESA, you can use a certain kind of 529 plan. You can save up to $12,000 per year, per child in a 529 plan. The money must be used for higher education only. Otherwise, a 10% penalty and taxes will apply to the gains only.
* UTMA/UGMA Plans: UTMA (or UGMA) stands for Uniform Transfer (Gift) to Minors Act. According to Dave Ramsey, while this is one way to save with reduced taxes, it is not as good as the ESA or 529 plans.
While the above plans are highlighted as good ways to save for college, Dave Ramsey also lists several ways he would NEVER suggest using to fund your child's education. Be wary of these things:

* Insurance
* Savings bonds (only 5-6% growth)
* Zero-coupon bonds. (only 6-8% growth)
* Pre-paid college tuition (only 7% inflation rate)

ESAs, 529 Plans and UTMA/UGMA Plans are the way to go!
Many people will get upset at the notion of funding their children's college fund only when they've reached step 5. They think that by not funding their child's education until they have all their debt paid off or retirement funded that they're in some way being selfish or harming their child. Your kids can always help pay for their own schooling or get scholarships, grants or loans. But if you don't get rid of your debt and start saving for retirement you may never be able to catch back up, and who knows if you'll be able to rely on social security for anything in your old age. Better to get your financial house in order first, and then help where you can.

Here are a few reasons why education funding should come only after you've gotten out of debt, saved up your emergency fund and invested for retirement:

* Taking the time to make sure you are secure in your retirement first takes a burden off of your children later on.
* Being responsible in getting rid of debt and saving for retirement sets a good example for your children, helping to lead them down the right path.
* Allowing your children to take on even a part of their school costs helps build character and makes their education mean more.
* Encouraging children to get good grades and participate in helping pay for their own college will help promote responsibility.

Even if you are able to pay for your child's schooling outright, it's a good idea to have them participate in paying for their own schooling. They can do that either by saving up for college through after school jobs, getting good grades that lead to grants and scholarships, and by going to in-state schools that cost less.

Here's a quote from Dave Barry speaking to the idea of encouraging our children to succeed:

I believe that we parents must encourage our children to become educated so they can get into a good college that we cannot afford. – Dave Barry

* Realize and enforce the value of education even when the children are younger. Encourage them to succeed to help pay for their own schooling
* Encourage in-state schools, or for some technical schools (not everyone is going to be a doctor or a rocket scientist!)
* Help where you can by saving in an ESA or 529 plan, but don't give a free ride!
* Realize that going to college doesn't have to mean going into debt. Save for them, have them to save some on their own, and encourage them to succeed in school.