I wrote an overview of Dave Ramsey’s baby steps system from his book, The Total Money Makeover, and I have been dissecting each of his individual baby steps as well. The Total Money Makeover is a personal finance book that I highly recommend and one of the greatest personal finance books to read. Today, we talk about baby step 5, saving for college for your children’s education.
Today, we will look at Baby Step 5 in more detail which is to invest and save for your children’s college education. There are seven Dave Ramsey baby steps that you should follow in order that will lead you to financial peace. Dave Ramsey’s baby steps are…
Baby Step 1 – $1,000 Emergency Fund
Baby Step 2 – Pay Off All Of Your Debt With A Debt Snowball
Baby Step 3 – Fully Fund Your Emergency Fund
Baby Step 4 – Save 15% of Your Income For Retirement
Baby Step 5 – Save For Your Children’s College Education
Baby Step 6– Pay Off Your Mortgage Early
Baby Step 7 – Build Wealth And Give
Dave Ramsey’s Baby Step 5 – Save for College
Dave Ramsey, the financial guru that banks and creditors alike fear, has a plan that is going to help people in getting to enjoy their debt-free life, save money, invest for the future and your children’s college, save for college, and live the life you’ve always dreamed of living.
Baby Step 5 of his book, The Total Money Makeover, helps people understand how to plan and help them in getting to enjoy their lives and know their kids are able to go to college.
Baby Step 5 is one that helps people build up their college funds for their kids. While this may not seem like a hard thing to do, it actually can be very difficult if you don’t plan for it. A college savings plan helps us enjoy knowing that college will be paid for and help avoid them from having panic attacks when the college tuition comes due or saddling our children with student loan debt for the first couple of decades of their lives.
529 College Savings Plans
A 529 college savings plan account is one of the most recommended ways for people to start saving for their children’s college education. A529 College Savings Plan is an investment with tax advantages that are designed to encourage savings for future education expenses like tuition, books, uniform, and other educational expenses. Profits earned in these programs can be withdrawn tax-free assuming that they are used for qualified higher education expenses.
Setting up a 529 college savings plan is very easy to do. Most states have their own plans, which help parents save on state taxes too.
You don’t have to sign up for the 529 college savings plan in the state where you live. There are others that are better and have cheaper fees. But, it may be worth looking at the state where you live first if you pay state income taxes.
Not only that these 529 college savings plan set up specifically for college education expenses, but you can also transfer the benefits amongst your children or even use the investment yourself. Just make sure that you’re making qualified purchases for educational expenses to avoid paying penalties.
Coverdell Education Savings Accounts
Baby Step 5 can also include Coverdell Education Savings Accounts. Coverdell Education Savings Accounts are another great tool that parents can use to save for college expenses and avoid student loan debt when it comes time for their children to attend college.
While most people may think that 529 College Savings Plans are going to be the best option, you should look at other options and plans that are available. These plans can easily help parents start saving for college.
A Coverdell Education Savings Account is a tax-advantaged investment designed to encourage savings for future education expenses like tuition, books, uniform, and other educational expenses. Like a 529 College Savings Plan, Coverdell Education Savings Accounts (ESA) allow money to grow tax-deferred and profits to be withdrawn tax-free for qualified education expenses at a qualified institution. Qualified expenses in an ESA include primary and secondary school and not just costs from a college or university.
It is important to note that people will need to make sure they know about the different interests because these are going to vary. So people need to make sure they know about the different costs and aspects of Education Savings Accounts (ESA) to ensure they know which one is right for your specific situation. If you have any questions, you should consider getting a consultation with a fee-only Certified Financial Planner (CFP).
Getting out of debt is going is the first step in Dave Ramsey’s baby steps from his book, The Total Money Makeover, but once you’re out of debt, you need to stay out of debt. Planning for college using Dave’s Baby Step 5 can help you invest for your children’s college and keep you from getting right back into debt.
Baby Step 5 makes it easy for people to get the right savings in place for their child’s college education.
Do you save for your children’s college education? Which savings account type do you use? Do you use a 529 college savings plan?
Dave Ramsey Baby Steps
Baby Step 1 – $1,000 Emergency Fund
Baby Step 2 – Pay Off All Of Your Debt With A Debt Snowball
Baby Step 3 – Fully Fund Your Emergency Fund
Baby Step 4 – Save 15% of Your Income For Retirement
Baby Step 5 – Save For Your Children’s College Education
Baby Step 6– Pay Off Your Mortgage Early
Baby Step 7 – Build Wealth And Give
