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Tight-Wad Tuesday: Going to College

I told my oldest elf that her Uncle John was coming to visit over the holidays and that he was looking forward to playing with her and chasing her around.

She smiles and asks, “Can I body slam Uncle John?” Either she remembers the stories of her uncle John being a wrestler or I have played waaaay to rough with this child! I need to teach her better and get her, and her sister, into a good college!

Speaking of, I left off last Tuesday on telling how you can send your child to college for free! It involved a little investing in state sponsored 529 plans. This Tuesday I wanted to bring you up to speed on doing intelligent investing so your 529 can grow, even during a stagnant economy.

I said ‘intelligent’ as we are all intelligent here, right? If you are reading this dry info you must have an interest in it. Now I do not want to assume you know everything I am pointing out here (You probably do) so I want to start with some basics to understand that are really, really cool.

First are two key terms, Compounded Annual Growth and Dollar Cost Averaging and why these two are always phriendly phrases when investing.

Even in the worst economies Dollar Cost Averaging is always on your side. Simply, it is the idea of steady, constant investing. The Motley Fool describes it this way:  the discipline of regularly buying shares of stock. An investor using this long-term technique would invest a set amount every month, as opposed to saving it up and investing it in one lump sum.

The keys here are 1) set amounts of money and 2) every month. An example is say you invest $50 every month in a stock and that stock’s price is $25. So each month you buy 2 shares. Say the price of the stock drops all the way down to $12.50. Bad, right? No its good this time. Now that $50 buys you 4 shares of that stock that month. So, if you are a long-term investor (for college) you are accumulating more shares of stock this way to compound. Over time, these purchases average to a mid price of all purchases, bringing your purchase prices lower…over time.

The compounded annual growth is phriendly concept thats maybe a bit harder to grasp. But it is the reason we invest over a long period of time. Simply, if you have $500 to invest and it grows 10% the first year you will have $550 at the end of the year, or $50 in growth. Now imagine in a few years you invest regularly and your investment grows to $5000. Now the same 10% annual growth is $500 in growth. Lots bigger than the $50 year one! Like the batter bunny, it keeps growing and growing and growing….

That is why you should invest regularly and over the long-term (get started as early as possible) to save you’re your Einstein’s education in 529 plans. Get the most for your dependents….and get your entire yearly investment back each year; in the form of state tax credit! Going to college for free!

How to go to college for FREE!

FIRST, for some background seasonal music click on Ding Dong, a song with possibly the best carol collaboration of beautiful voices ever. My favorite!

So you have a gifted child and you wish the best for him or her. They are strides ahead of other toddlers their same age! How can you send your child to the best schools as cheaply as possible?

Play the lottery!

I am kidding of course. But there is one way to send your kids to college as close to free as could be.

What if you invest money for their education? This money is earmarked for tuition, books, room and board, even computer programs. Then what if every year, all the money you spent investing for their education you got back? Every dime of it! AND, if those contributions grew while it was invested (hopefully) you can use that growth tax free as well? Wouldn’t that be like going to college for free?

That is what state sponsored college saving 529 plans do. You can make regular contributions to the plan and then get the total amount of your yearly contributions off your state taxes at the end of the year. Earnings grow tax free as well.

Each state has a different 529 plan so you will have to look into the plan administered by your state. Here is a place to start to find the plan in your state. Want to know more about the details and benefits of college saving 529 plans look here.

There are several types of custodial accounts for minors. Bank custodial accounts and UGMA’s are a few others. Each has their own set of rules as to who controls the money and what it can be used for. But if you want to invest money specifically for an education (and it can be spent on private schools before college as well), state sponsored 529 plans are the best way to go.

Have two Baby Einsteins? (you both were geniuses, right?) The money that is not used by one child in one 529 account can be transferred to another child for educational purposes as well. Like I said each plan is different so do some research and get started. If you have any questions please ask!

Next week I will make suggestions on the best way to invest that money in the 529 plans.

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