Step 1: Set realistic goals.

Think about the future and how you hope to help your children. This is a good time to sit down with your spouse or partner, and ask some basic questions to assess your situation. If your children are young, it may be hard to know all the answers, but you can always change your plan as life changes.

 Things to think about:

• How old your children are now, and how long do you have to save?
• Are they likely to go on to further studies after high school, or do their interests and abilities point in a different direction?
• Will your children be going to university, college or a trade school? Will they live at home or away?
• Will you pay all of the cost, or will your children also help by getting jobs or taking out student loans?
• Will your children be able to get scholarships, grants, or financial aid?
• Can any other family members help out?

Tip: As you plan your savings strategy, try to set specific goals. For example, will you pay all of each child’s education costs, or just their tuition? Goals like these are clearer than something vague, like saving what you can. With specific goals, you’ll be much more likely to stick to your plan.

Step 2: Calculate how much you need to (or can) save.

Once you’ve chosen some goals, it’s time to turn them into dollars. You need to figure out what your child’s education will cost and then see how much you need to save. After you calculate your target number, stop and take a reality check. Is this a realistic number?

Things to think about:

• Can you afford to save as much as you would like? If you have other savings goals, what are your top priorities?
• If your household budget is tight, can you change your spending habits so you can save more? If you can’t spend less, you will have to change your savings goals.
• Will you get any government grants for each child? Can you save enough to get the maximum amount?

Tip: Many experts agree you should not give up retirement savings to save money for a child’s education. There aren’t many places you can go to get money to live on after you retire, but there may be other ways to pay for your child’s education. For example, your child may get student loans or a part-time job while in school.

Step 3: Choose your investment strategy.

Once you’re ready to start saving, the third and final step is to decide how to invest your education savings. Here are some examples, based on your child’s age.

If your child is under 10: You have more time to build up your savings. Many people use these years to invest for growth. While stocks or stock mutual funds offer more potential for growth, there is also more risk when you invest, and you could lose money.

If your child is between 10 and 14: You have less time to grow your savings. In this situation, many people move to a more balanced approach. They may buy stocks or stock mutual funds for growth, but they balance that with shorter-term bonds, or bond mutual funds. These investments create income with less risk. 

If your child is over 14: The time is soon approaching when you will need the money. Now you will likely change your investment strategy again. Many people at this stage focus on bonds and bond mutual funds that are timed to mature when tuition is due.

Remember:

Your approach will depend on your goals, the time you have to save, and how comfortable you are with investment risk. Make sure you check your progress along the way and adjust your approach if needed.