This Is Your College Fund
Jill and her husband have an 11-year-old daughter. They have $4,200 saved for her and save $50 a month for her. Should they be investing that money for her instead of putting it in a savings account?
QUESTION: Jill in Lynchburg and her husband have an 11-year-old daughter. They have $4,200 saved for her and save $50 a month for her. They’re wondering if they should be investing that money for her instead of putting it in a savings account.
ANSWER: I think college, out of the three things we’re discussing, is the priority. Between a car, college and saving for her future in a general, vague way, I would choose college if I were in your shoes. I want to make sure that is taken care of, so probably if I’m in your shoes, what I’m going to do is go to daveramsey.com, click on the Endorsed Local Provider there, and talk to them about a 529 with some mutual funds in it. Move that money into that 529 so that it will grow from this point forward tax free.
If you continue on the route that you are on—$4,200 plus $50 a month for seven years—if the mutual fund averaged 12%, you’d have about $16,000, so you’re still going to be short. College right now is $50,000 for in-state, including dorm and food and books and that kind of stuff.
As far as her car goes, I think what I would do there is set up a separate savings account and just tell her whatever she saves toward her car, you’re going to match it. Let her work and save and work and save and babysit and dog sit and whatever she can do there in the neighborhood and that kind of thing and save money. If she saves up $3,000 or $4,000 on her own that way, you put $3,000 or $4,000 with it, and she’ll have a pretty nice car. Then on top of that, you’re going to have to do some more of what we’re talking about for college. But I think this is your college fund. I think that’s what it’s going to transfer over to if I’m in your shoes.