Ten Budgeting Basics For Parents

Forget parents of high school students. These days you need to start thinking about budgeting for your kids' college education as soon as they're born. But of course, most people aren't thinking that far ahead. If you've got a child in high school and you're thinking about how you're going to pay for college, it's time to prepare.

Rule #1: The Earlier, the Better

OK, if your son or daughter is already a senior in high school, you're out of luck when it comes to Rule #1. However, if your child is a junior, a sophomore, a freshman or--even more fortunate--not even in high school yet, you should know that the earlier you start saving money for an education, the better off you'll be in the long run. Start socking away money now, and by the time your kid goes to school, you should have a good amount to help pay the way.

Rule #2: If You Don't See It, You Won't Know It's Missing

If you've got direct deposit at your workplace, start a savings account specifically for your child's college costs, and have a certain amount go into that account out of every paycheck. If you aren't getting the money in hand, you won't count on it being there every paycheck. That means you won't "accidentally" spend money that you meant to sock away.

Rule #3: Know Your Investment Options

A savings account will get you interest on your savings, but there are other ways to save that will help you build an even bigger nest egg to spend on your child's college education. Taxable investment accounts, annuities and U.S. Savings Bonds are several options. Even better are some new investment vehicles--created as the tide of higher college costs threatens to overwhelm many families--such as Section 529 college savings programs.

Rule #4: The Student Loan Debt Rule

Many experts say that your student loan debt shouldn't be more than 10 percent of your annual income. That's something to keep in mind as you're considering which school to attend and how much to borrow. If your child is going to be taking the responsibility for the loan, you don't want to overdo it. That first job out of college isn't likely to be a high-paying one, so you don't want to saddle your kid with too much debt.

Rule #5: Figure Out Your Potential Costs

Even if your child hasn't figured out where to go to school yet, you can start to get an idea of how much you'll need. Is your kid planning to attend a state school, in your state? Out of state? A private college? An Ivy League school? If you know the general sort of school your child will be attending, you can compare the costs of various schools and get an average to use as an estimate. If you know where your child is attending school, add up all the costs--including tuition, room and board, books, fees, living expenses, etc. Now add a little bit more. (You'll probably need it.)

Rule #6: Create a College-Years Budget

This is a budget for your child--and for yourself. You need to know how much your child is spending while at school, and you need to count that as part of your own budget if you're footing the bill. The good news is that if you enforce a budget for your child, he will learn really valuable lessons about how to get along with money for the rest of his life.

Rule #7: Be Realistic

When you're creating that college-years budget, don't assume that you--or your child--are going to change your spending habits in order to make a smaller budget work. You know you need to put gas in your car. You know your kid likes to buy a new video game every six weeks. Put it in the budget, and you're less likely to be in for a nasty surprise.

Rule #8: Don't Fall Into the Credit Card Trap

Does your child REALLY need a credit card? Probably not. They may get one anyway, without asking your permission, but don't encourage it. It will only add to their debt load in the end, and credit card rates--especially for college students, who have little or no credit history--can be particularly nasty.

Rule #9: Get a Job (For Your Child)

It's not always realistic for the parents to shoulder the entire burden of a college education. If you're in that boat, you might consider telling your child that she'll have to get a job while in school--even just to pay day-to-day living expenses like pizza and movies. Even better, ask your child to pay for his books and supplies. There are usually many jobs available on and off campus for college students, and most won't interfere too much with your child's education.

Rule #10: Borrow Wisely

If you decide you're going to have to rely on a loan to get your child through school, do plenty of research so you understand exactly what you're getting yourself (and your child) into. Start by applying for federal aid. If that's not enough, you may need to take out a private loan. Bonus Rule: Find Free Money Encourage your child to hunt for scholarships that will help pay part of the cost for schooling. There are programs out there for every type of student--from athletic scholarships to academic scholarships to scholarships for Star Trek fans. Something is bound to work for you. And your kid will get a lot of good experience in applying for these funds.

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