How Should I Save For College?
Carmen in New York just adopted a girl. What can Carmen do for her in terms of college and savings?
QUESTION: Carmen in New York just adopted a girl. What can Carmen do for her in terms of college and savings? Dave wants her to get something else taken care of before savings.
ANSWER: Get your household stabilized and on a good plan, and that will lead to college savings. We teach people to work the Baby Steps. Baby Step One is saving up $1,000 for your emergency fund. Baby Step Two is to become debt-free except for your home by paying off your debts smallest to largest.
Once you’re debt-free, you need to build up your emergency fund to three to six months of expenses. Then, you’ll go to Baby Step Four, which is putting 15% of your income into retirement. You’ll do Baby Steps Four, Five and Six at the same time. Baby Step Five is kids’ college. Baby Step Six is paying off your home early.
If people are giving your daughter gifts now, you can go ahead and open an Education Savings Account (ESA) for her and place the money into the ESA.