How much can you save to invest?

For many, no day is complete without a trip to the neighborhood coffee shop. Many of us have been known to enjoy our triple nonfat caramel lattes, double espressos or half caffeinated mochas – whether we are shuttling our kids from school to the little league game, congregating with other parents to organize PTA functions or working on our company’s marketing plan.  

But while the motivation for seeking out our daily cup of Joe varies, this daily ritual can come at a high price. What seems like a simple, inexpensive pleasure could add up to significant cash that goes nowhere except down the drain.

According to financial expert and New York Times Best Selling author, David Bach, the Latte Factor includes those unnecessary “little expenditures” that all of us find ourselves wasting money on every day. Bach says these little expenditures can add up to a lot of money over time, which we can invest elsewhere.  

He maintains that the sooner you figure out your Latte Factor, the sooner you can start eliminating it. You’ll then be able to save more money, redirect it to savings and investments and get into a much stronger financial position. Bach argues that the impact of this can be life changing.  

Think about it. Spending an average of $ 3.50 per day for a Latte adds up to $24.50 per week, $105.00 a month and $1260.00 per year. These figures could help you make big strides towards achieving important goals such as investing more in your 401(k) or saving to fund your children’s college education. And don’t forget about some of the fun family experiences that you could fund each year — all by simply foregoing your morning latte.

Why not take it a step further and use one year’s worth of savings and install your own high-tech machine? You can then enjoy a morning latte — all in the privacy of your own home. That’s what my frugal friends (let’s call them Tony and Maria) did. Now their kitchen includes a state-of-the art contraption – one that serves up lattes, espressos and just about any coffee that you’d like. For them, it provides a daily escape to the Italian countryside without the expense of airfare, hotel or driving to the nearest Starbucks for steamed milk and espresso in a little paper cup.

If you are interested in taking David Bach’s Latte Factor Challenge, a new iTunes app, the Latte Factor calculator, allows you to figure out what you could save and earn in potential interest over the course of one, five, 10 and up to 40 years if you invested those otherwise wasted dollars on a regular basis. After doing the tracking exercise that Bach recommends, you can use the calculator to view your total spend on an average basis ranging from daily, weekly and monthly.  Next, after clicking “see savings,” you’ll be able to select a potential interest rate and discover what you could earn over time if you regularly invested the amount you’d normally spend on things like lattes, bottled water, eating out or other unnecessary expenditures.

For some, an aggressive approach to cutting out lattes and all the extra, nice-to-have items is top priority because it means gaining financial freedom sooner rather than later. For others, the occasional evening out, take-out pizza or latte is a small treat that can help keep the peace. It all comes down to achieving the right balance towards saving more than you spend — even if you indulge in a latte every now and then.

Choosing a Guardian

By Richard Collari Jr.

As parents, our single most important job is raising our kids.  We spend countless hours teaching our children right from wrong, baby proofing the cabinets, installing a gate at the top of the stairs, using the best car seat available and driving the safest vehicle that we can afford. 

However, even the most conscientious of us can put off getting the legal documents together that will set forth, among other things, important choices about who will do the job of being our children’s guardian if the unthinkable happens.

Picking a guardian is absolutely necessary for parents who have minor children.  Without exercising the power of choice, parents leave the decision to the courts.  Obviously, if one parent dies or becomes unable to make decisions, the other parent will usually retain sole custody of all children — unless special circumstances exist.  But if both parents die or become incapacitated, a court action is required to appoint a legal guardian for the children.  In this proceeding, which is known as a Guardianship Proceeding, the court will consider the desires of the parents first, which, preferably, have been expressed in a written Nomination of Guardian. To make a valid Nomination of Guardian, the parents must execute a will.  The court is then required to appoint the nominated person as the guardian — unless this scenario would go against the best interests of the child.  Without a Nomination of Guardian, the court will make the decision for the parents – all on its own.  Of course, the courts will try to understand what would be in the best interests of the children. Without the benefit of knowing the parents wishes, however, the court may not always get this decision exactly right. 

In selecting a guardian for their minor children, parents should carefully consider who would be the most appropriate choice.  Since this decision is such a critical one, it is important for parents to make sure they talk with their “nominee” about whether he or she is willing to care for the children if something were to happen.   Parents should also consider alternate choices, in case the first nominee is later unable to take on the responsibility of caring for the children.  Finally, when considering prospective nominees, parents should think about:

• the relationship between the nominees and their minor children,
• the age of the children and the nominees,
• where the nominees currently live,
• the nominees’ religious beliefs, and
• the discipline style and personal values of the nominees, among other considerations.

One of the most vital considerations is whether the nominees themselves are willing and able to take on the responsibility of being a guardian.

Other important details to think about include how to manage the guardianship if the nominees are married to one another and they separate or divorce or one of them becomes injured or passes away.  If the nominees are married to one another and one is unable to serve as a guardian due to death or incapacity, would you want the other nominee to care for your children by themselves?  If not, then you should only nominate the one person instead of both individuals together as a married couple.

Ultimately, choosing who to nominate comes down to identifying potential guardians who are most like you.  Hollywood dealt with this very issue in a recent movie starring Kate Hudson.  The movie, Raising Helen, explored the issue of guardianship in the context of two potential guardians who were both sisters of the deceased parent.  On the surface, one sister seemed to be the more “logical” choice. But for reasons more personal to the parents who had made the guardianship decision, the other sister, was preferred. She was more “like” the now-deceased mother. 

It might be comforting to know that you can condition your nominee’s appointment upon certain criteria and parameters.  For example, if you wish to nominate a potential guardian who lives across the country and do not want your children to move, you can condition the nominee’s appointment on his or her willingness to relocate to where your children are most comfortable.  In essence, you can build-in parameters that take into account different scenarios and allow for alternate solutions — depending upon how those scenarios actually play-out.

As part of the guardianship decision, how to finance your children’s up-bringing is also an important factor.  Structuring trusts for the benefit of your children and appointing a “trustee” who will be responsible for managing the financial side of raising your children when both parents are no longer living can ensure that your children are provided for financially.  The trusts can be written to allow pay-outs to the children when each of them achieves a milestone like graduating from high school or college, reaches a certain age (such as 25 years), a combination of both occurs, or something completely different happens.  It is totally up to you.  Who is better equipped than you to know and understand what goals you have in mind for your children and the values you want to instill in them?

 To sum it all up, when it comes to guardianship of a minor child, the decision requires careful thought and consideration. As with everything else, guardian nominations allow for a broad spectrum of different choices.  The good news for parents of young children is that the peace of mind that comes from making these choices far outweighs any cost associated with preparing the legal documents.

* * * * *

Richard L. Collari Jr., an attorney in good standing who is licensed to practice in Californiai, is located in Danville, a suburb of the San Francisco Bay Area. For more than 11 years, his practice has focused on estate planning. He and his wife have two young boys. If you have any questions about this article or any other topic, please contact him at (925) 648-2043 or rick@collarilaw.com.

Avoiding the Common Pitfalls of Creating a Will and Trust

One of the most important items on the financial to do list for new parents is an estate plan, which typically includes a will and a trust. A will can designate the person who will oversee the process of concluding your affairs, based on your directions.  It also can express your intent when it comes to your burial, guardianship of your children and other things that are important to you. A living trust is an agreement that names the person or people who will manage and enjoy the benefit of your property, both before and after your death.

While the process of creating an estate plan that includes a will and trust sounds like a straightforward process, there are many complexities that make it not so cut and dried. There is plenty of room for error. Here are the top five common pitfalls to avoid when designing a will and trust:

1. Thinking a “Do-It-Yourself” solution is the be-all end-all. There are a number of software solutions that might be just what you need to create a basic will and trust such as Suze Orman’s Will & Trust Kit. While these might be able to walk you through the process of designing a will and trust that is right for you, there are a few reasons to consider enlisting the help of an estate planning professional, especially if your situation is complicated by divorce, children from previous marriage, or if you assets are significantly above $1 million. These reasons include the risk that you could overlook something or neglect to think about a crucial aspect of your estate. In addition, it is important to remember that laws can change. When they do, your will and trust can be affected. So, getting help from an estate planning professional at some point, along the way, is a good idea — just to make sure your plan is adequate enough to meet your needs and up to snuff with all the latest regulations.  At the end of the day, having a basic will and trust set up is better than having none at all.

2. Selecting a guardian for your child without careful thought. There are a number of factors to consider when selecting a guardian for your child, if the unexpected were to happen. Is Uncle Bill or Aunt Kathy really the best person for the job? And, while it might not be easy, having a heart-to-heart chat with whomever you would like to play the role of your child’s guardian is key.  You want to make sure they are willing and feel confident to handle the day-to-day raising of your child until he or she reaches the age of 18. Remember, if you procrastinate now, the result could be court intervention if the unfortunate were to occur.

3. Forgetting to update your will and trust. If you think that estate planning or creating a will and trust is a one-time project, you’re likely to miss covering all your bases.  As your circumstances change, your will and trust should be adjusted. A change in the law could also affect previous decisions that you’ve made and outlined in your estate plan. As your family evolves, you’ll also want to revisit your will and trust to make sure they both still makes sense, given your current situation.

4. Leaving out the details when designating titles and beneficiaries. Figuring out all the details of your estate plan can be a tricky proposition. Who will act as the executor? Under which conditions will specific beneficiaries be named? A thorough estate plan can help make sure all your instructions are packaged correctly and, when you are no longer around to have a say, carried out in the way that you wish.

5. Believing a will and a trust or estate plan is unnecessary. Whether you’re the next Warren Buffet or not, there is no financial threshold that is required before the creation of an estate plan becomes necessary. It is true that the more assets you own, the more complex of an estate plan you’ll need.  Certainly if you own your own home or any other real property, a will and trust is vital. Just the fact that you are a parent, however, makes creating a well thought-out estate plan an absolute must.

By dodging these mistakes, you’ll be able to create a will and trust that brings you peace-of-mind. They are things you should not live without, especially as you begin to build your family. Once they are in place, you’ll be able to rest assured — knowing that your children will be taken care of, no matter what.

Coming Together On Family Finances

If you’ve found that talking about family finances with your spouse is difficult or completely uncomfortable, we have some suggestions that can help.  

Before doing anything, think about whether or not you and your spouse are on the same page in regards to how to budget money. Each of you is an individual, especially when it comes to your beliefs surrounding your finances. Are you a saver or a spender? What about your spouse? How were each of you raised to handle or talk about money? Addressing these issues is an important first step.    

The second step includes figuring out where you are going. How can money help you get there? Do you look at money as a tool to bring freedom and security? What type of lifestyle would each of you like to have? What is realistic, given your current income and goals?

How Much Comes In and How Much Goes Out?

To see where your money is actually going, we recommend that both of you get together and write down your monthly and weekly expenses on paper. List all details about what you buy and how much you spend on it.  

Then, see where you can shave costs. This is a budgeting basic that can give you some extra cash to put towards saving for a rainy day, college savings, your 401(k) or just good old fashioned family fun.

A good way to do this is to use a personal or home budgeting software program like Intuit Quicken or, if you operate a small business out of your house or apartment, Intuit QuickBooks.

“It is the responsibility of each person to watch their spending and talk about it,” says a Livermore, Calif. working mom of two – let’s call her Iris.

Iris’ husband – let’s call him Tom — a sales executive for a technology company, says budgeting is very difficult for him since their income varies. They don’t have a strict monthly budget, although they keep track of everything by using Quicken. He says he takes care of the recurring monthly bills and Iris is charged with purchasing what they need to run the household.

And Baby Makes Three

Becoming a parent is a huge life change. Initially, it will be about sleep deprivation. Then trips to Walgreens or Target suddenly trump a night out on the town. And finally, you’ll notice the cash coming out of your budget to fund kid oriented expenses like music lessons; gymnastics; day care, if both you and your spouse work; and perhaps even private school.

Becoming a savvy household budget planner is truly an important requirement that gets kicked into high gear when you make that transition to parenthood.  

Working as a Team

The best way to assure harmony in dealing with financial matters is to make sure you and your spouse are one when it comes to saving and spending.

Who likes to handle the finances? Oftentimes, it’s one or the other partner who would prefer to be in charge of this task. Do you trust your spouse to make good financial decisions, or do you feel the need to stay in control? Keep in mind that sometimes where you came from can greatly affect your outlook when it comes to this.

A Los Angeles Calif.-based stay-at-home mom — let’s call her Fran — remembers a time, during her childhood, when her parents were going through a financial hardship. This, she says, shaped her awareness of saving and spending. As an adult, it made her want to always “maintain control” of the family finances. Fran is responsible for managing the family finances. And she prefers it that way.

Fran’s husband would rather not deal with the finances. So he is happy to have her do it. Fran says they each have their own individual checking account and credit cards. They do have a joint savings account. However, each of them pays certain bills out of their own account. Accessing each others’ accounts can be a challenge, says Fran. But now that she has taken time-off from her career in telecommunications to stay at home with their two kids, she feels even more compelled to be in-charge of the family finances.

Mutual Respect Is the Name of the Game

In the best of all worlds, and with a little budgeting help from your partner, you’ll be able to create a plan of action that allows both of you to get what you want. That being said, if you still find yourself feuding with your spouse over the family budget, there are various techniques that you can use to help work things out.

According to an article by Denver, Colo.-based clinical psychologist, Susan Heitler, PhD, Conflict Resolution: Essential Skills for Couples and Their Counselors, “spouses who do not know the basic guidelines for sustaining healthy dialogue are likely to crash and injure each other like car drivers who do not know the basic rules of the road such as driving on the right and stopping at red lights.” Here are some techniques that she recommends couples consider implementing for basic conflict resolution:  

• Express initial positions
• Explore underlying concerns
• Create a solution set responsive to all the concerns of both participants 

Communication and cooperation are obviously vital to the success of this process. But most of all, it is important to approach the process with respect for your differing points of view. It’s no easy task. Budgeting is an ongoing process with many bumps along the way. The key lies in being flexible to make adjustments and navigate the curves that might lie ahead.

Building Your Emergency Fund

An emergency can happen at any time. A special fund that you create for an unforeseen circumstance like an unexpected job loss or illness will see your family through it – all the while preventing unnecessary debt and the associated finance charges that could be very easy to accumulate.

How Much Is Enough?

The answer depends on your individual situation and how much you spend. In Smart Women Finish Rich, David Bach recommends that his clients save three to 24 months of living expenses. He explains that the “right amount” is different for every individual and depends upon one’s own comfort level. Other experts like Suze Orman recommend at least eight months of your salary to pay for the mortgage, if you own a home, in addition to basic living expenses. Most experts agree that the size of your emergency fund also depends upon how easily it would be to replace your current income if you were to lose your job, considering your current salary and position. Finally, one thing to remember is that once you’ve accomplished your goal of creating this fund, no matter how much you have saved, you’ll have less stress and the peace-of-mind to focus on other priorities like saving for retirement or your child’s college education.

What if I Have Credit Card Debt?

Whittling down unsecured debt should always be your first priority when it comes to your finances. So, if you have credit card debt, you should try to pay that off first. At the same time, however, it is important to try and save at least a little each month. One strategy to consider is to save the first $1000 towards your emergency fund. Then, pay down your debt until you are free and clear of it. Go back to saving for a rainy day after you’ve accomplished this goal.

Where Do I Start?

You can begin saving towards an emergency fund with as little as $5, $10 or $25. Before you figure out how much you can save, calculate your basic living expenses and make sure you have enough to meet them. A high interest yielding money market account is a good place to begin depositing your money. With a three-month bonus rate of 2.25 percent and an Annual Percentage Yield (APY) of 1.51 percent, EverBank’s Yield Pledge Money Market offers a high yield, FDIC insured account. Another good option is ING Direct’s Orange Savings account with an APY of 1.30 percent and no under the limit fees.

Out of Sight, Out of Mind

If you are tempted to spend your savings, put it in an account that is hard to get to. My friend from Los Angeles (let’s call her Fran) has kept a bank account that she opened when she was single, even though it was acquired by another institution in Arizona and moved there after its purchase. Now that Fran is married and has two kids, she uses this account to save her emergency dollars.  “It helps that I can’t get to it easily — I generally can only make deposits or withdrawals from it by mail.”

Cut Your Budget to Save More

To ensure that you are saving the optimum amount towards your emergency fund, see where you can cut your expenses. Here are a few Ideas recommended by some parents we talked to.

Opt for a Pay-as-You-Go Cell Phone Plan: Do you really need all those rollover minutes? Page Plus Cellular offers a pre-paid cell phone plan. At $29.99 a month, Talk n Text 1200 with 1200 minutes, 1200 text/MMS messages and 50 MB of data offers a cost-effective plan that serves most people’s needs. Unless you make a lot of international calls or go over your allotted voice usage, this plan can help put more cash in your savings account.

Stash Away Cash: After you pay all your expenses and deposited whatever you’ve decided to put away monthly, take the remaining cash out of your checking account and sock it away in your drawer. Use this cash to pay for groceries and anything else you need for your household.

Comparison Shop: To get the best deal, seek out at least three bids for items like auto and home insurance. You might be able to save hundreds of dollars by choosing the least expensive plan.

Forgo the Daily Latte: When you do the math, you’ll be amazed to realize that the $3.50 or more a day that you save by skipping the trip to Starbucks can add up to over $1200 per year. Why not save it for a rainy day? If you must, you can still treat yourself. You’ll still do okay by limiting yourself to one Latte per month.

Refinance Your House: If you are a home owner that bought before the market’s peak, there might be enough value left in your home to refinance into a lower monthly housing payment. Interest rates are still low. As long as you qualify with an acceptable credit score and DTI ratio, this option could help you save significantly on your monthly mortgage payment.

Sell Your Car: If you have an extra car that you own outright, why not unload the one with the car payment? Most large metropolitan areas are easily accessible by public transportation.  And there is always the option of carpooling. Alternatively, if you have a new car, you can downgrade for a cheaper, used model.

Curl Up to a DVD and Meal at Home: Stay-in instead of dining out. It’s more economical and generally healthier – allowing you to better control the quality of food you eat. And if you have an account with a company like Netflix, it’s  affordable and convenient to keep up with the latest blockbusters.

Remember, a penny saved is a penny earned. And in this economy, being prepared is a very good thing.

Pros:

• IT’S SO MUCH EASIER: By consolidating multiple 401(k) accounts into a single IRA, you eliminate the hassle of having to coordinate separate accounts with different investment options, administrative rules, passwords, etc.
• YOU’LL DO BETTER: 401(k) accounts generally have very limited investment options. Many times they have high fees and do not offer sufficient breadth to allow for diversification. In an IRA, you can just about invest in anything including mutual funds, stocks, and ETFs.
• SAVE ON TAXES: With a direct rollover, there are no tax implications. And your assets’ tax-deferred status remains unchanged. You’ll pay income tax when you withdraw the funds.

Cons:

• While you can take a loan against some Employer sponsored 401(k)’s, you can’t take one out on an IRA. But hey, in most cases you shouldn’t do that anyway.

Four Simple Steps:

1. Call Your Favorite Brokerage Firm. To make life easier, pick one that already holds your other accounts.
2. Ask to Speak with an IRA Rollover Specialist who can help you with every step, from opening your new IRA rollover account to calling your current 401(k) custodian to initiate the process. He or she will also guide you through the paperwork. Both Schwab and Fidelity have very helpful specialists. How do they make money? Brokerage firms earn commissions when you trade and, if you let them, fees for managing your money.
3. Chose a Direct Rollover. The specialist will ask whether you’ve reviewed the IRS disclosure rules. (The government requires every brokerage to do this). After you say yes, the specialist will initiate the direct rollover and send you a check (made out to your brokerage of choice with you as the beneficiary), which should arrive within 10 business days.  Take the check and send it in to your brokerage.
4. Invest It Wisely. Once your account has been funded, use an appropriate strategy to invest it. Choose the right asset allocation.

Tip of the Day:

If you rollover your 401(k) to Charles Schwab right now, you can create a diversified asset allocation using the firm’s six new ETF’s. These ETFs have very low fees and Schwab currently does not charge commissions on them. So your rollover will be totally FREE.

Do it today!  We just helped one of our clients through this process – it took only a half hour.  It will relieve anxiety and stress.  Really!

It’s our kids that get this the most. Let’s not forget the sheer overwhelm that comes from opening all those presents — many of which get used once and then tossed aside. There is a simple solution. Enlist the support of your family and friends in saving towards something more meaningful.

Give the Gift of a College Education

Freshman Fund allows parents to open a college savings fund and invite anyone to contribute to it. Ugift, an online gifting service from Upromise Investments, also lets 529 plan owners invite others in their social network to contribute to their account.

Help Kids Reach Their Goals

With SmartyPig, parents can open an account for their kids, help them set concrete goals, and then watch them save to achieve them. Of course, parents can invite friends and family to help out. Finally, the site offers a number of redemption options.

Establish a Family Fun Savings Account

Opening a savings account for the purpose of sharing fun, family experiences is another terrific alternative to the run-of-the-mill holiday gift. Create excitement by making a list of all the great things you plan to do with the funds. Then, encourage everyone in your clan to contribute their allowances and spare change to the account. Bank of America Keep the Change Savings Program offers one good way to do this by rounding up purchases made with your Bank of America Check Card and then transferring the difference from your checking to your savings account.

In this economy, a holiday gift is a terrible thing to waste. The gift of savings today gives back tomorrow. And, at the same time, reduces the number of ugly sweaters under your tree! Sorry Grandma.

Just how are real parents doing it these days? What college savings tactics are they using? CloudFi asked three families. They wanted to share their stories, but not their names. So we changed them. Here are their stories.

A Balancing Act

Sabrina and Samuel are in their mid thirties. Sabrina is a software engineer for a telecommunications company and Samuel is a software engineering manager at a Silicon Valley technology company. They live in San Ramon, a San Francisco Bay Area suburb. Their six-year old daughter, Rebecca, attends the local elementary school.

For years, they have saved money into an employer sponsored 401(k) plan. And, when their daughter was born, they purchased a tax deferred, cash value life insurance policy. They plan to use this cash, tax-free, to help fund their daughter’s college education. And they would also like to start a college savings plan.

Recently, they purchased a home. So, while they haven’t been able to put money away for college, they plan to do so as soon as they are able. Sabrina believes it is now more important to prioritize saving for college above saving for their retirement. Sabrina and Samuel’s biggest concerns include planning for ever increasing college costs and tapping into advice that they can trust. They hope that whatever plan they embark upon will be safe and secure.

MYTH: All 529 Plans are made up of stocks and mutual funds, involving some risk.

FACT: You can fund a 529 plan that is made-up of CDs, money markets or savings bonds, which involve little or no risk. Yet, unlike a traditional savings or taxable brokerage account, these type of 529 plans allow you to use the money, tax-free, for college funding purposes.

The Best Laid Plans

Ronald and Tamara live in Westborough, an affluent suburb of Western Massachusetts. Now a full-time writer, Ronald is a former director of grant development at a local community college. Tamara is a science teacher at the local high school. They have three boys. The eldest, Christopher, is 13. The twins, Edward and Noah, are 11.

Ronald and Tamara started saving for college in early 2000 when Ronald’s father encouraged them to invest in the first Massachusetts-based 529 plan that was offered by Fidelity. Ronald and Tamara were investing $50 every month into the plan until recently when Ronald left his job to pursue his newly formed freelance writing business.

Their portfolio consists of a variety of mutual funds. With a blend of conservative and aggressive funds, they are modest investors.

Soon, Christopher will turn 14. As the college years fast approach, Ronald and Tamara realize that they must step-up their college saving efforts. “We have to come up with a lot more money,” says Ronald. He would like his boys to have the opportunity to attend a university in the Midwest, like Northwestern, or one in the Southeast, like Duke.

For Ronald and Tamara, saving for college is secondary to saving for retirement. They worry about having enough left over to be able to save for college.

MYTH: Private Schools are out of reach unless you have saved a lot of money.

FACT: Many private colleges and universities offer more financial aid than their public, state-run counterparts. This sometimes means that they can be more affordable than state-run schools.

Thinking about Tomorrow

Clare and Bob live in Pleasant Hill, another suburb of the San Francisco Bay Area. This is the second marriage for both of them. Clare is a senior account executive for an advertising specialty company. She has a 15-year old daughter, Maureen, from her first marriage. Bob works as a project manager in the oil industry. He has a daughter, Karen, from his first marriage. Karen is now a senior at California State University, Chico.

When Maureen was six or seven, Clare opened a custodial IRA through Morgan Stanley. She selected this type of account because 529 plans did not exist when Maureen was younger.

And she likes the flexibility of being able to use the funds for other purposes, just in case Maureen chooses not to go to college in the U.S. Currently, she saves around $200 per month into that account.

If Maureen turns 18 and isn’t sure what career she wants to pursue, Clare expects Maureen to take all her general education requirements at a local community college. Then she can transfer to complete her bachelor’s degree at a four-year institution such as UC Berkeley.

Sending Maureen to a community college first will give Clare more time to save. And, if Maureen must work during the summer months to contribute somewhat, Clare thinks that is okay. “We could put more away. But, we believe there is nothing wrong with allowing a child to make her own way,” says Clare. “Our retirement is first and foremost.”

MYTH: Some children are not able to receive financial aid because their parents earn too much.

FACT: There are a wide-variety of financial aid options available, including grants, work-earning programs, scholarships and loans. Most American families qualify for some financial aid. Since there is not a precise cutoff for financial aid, it is a big mistake not to apply.

If you are a parent to be, you’ve probably been undergoing a flurry of planning activities, from decorating the nursery to researching baby names. College savings is probably not high on the priority list. Yet, considering the impact of tax-free compound growth over time, it should be. Taking the college savings plunge in the early years can pay-off exponentially in the long-run.

529 Plans and the Coverdell ESA

One of the best way to save for school is to sign-up for a college savings plan. These plans are often called “529 plans,” after the section of the IRS tax code that authorizes them. All 50 states sponsor them. There is no minimum investment. The maximum allowed contribution follows federal gift tax regulations — 13K per year, or 65K over 5 years and, for a couple filing jointly, 26K per year, or 130K over five years per donor. You must invest in the investment options available under the plan. However, you aren’t limited to investing in the 529 plan sponsored by your home state. Instead, you have the option of investing in any of the 50 state sponsored 529 savings plans. And, you can use the earnings from any 529 plan to pay for college expenses in any state, not just your own.

There are different types of 529 plans, including 529 prepaid plans and 529 savings plans. 529 prepaid plans allow you to lock-in today’s tuition rate at public and some private colleges in a particular state. 529 savings plans can be made up of mutual funds. There are also several 529 savings plans that give you the option to invest in FDIC insured CD’s or guaranteed products. All grow tax free and can be used for any qualified higher education expenses, such as tuition, room and board, and miscellaneous college expenses. There are now about $100B invested in about 80 529 plans across the U.S.

The Coverdell ESA (formerly known as an Education IRA) is a flexible, supplemental tool that can be used to help finance education at any level, from K-12 through graduate school. Coverdell ESAs allow eligible parents, family members, and students to contribute up to $2,000 per year per child (until that child reaches age 18) toward qualified education expenses at any college, university, vocational, elementary, or secondary school. The benefits include tax-deferred growth and tax-free withdrawals when the proceeds are used to fund qualified education expenses. And, there are no restrictions that prevent parents from contributing to both a 529 plan and their ESA each year.

Financial aid

This year the US Department of Education (ED) will provide more than $116 billion this year to help millions of students and families pay for postsecondary education.

Many higher priced universities actually offer more financial aid options than their public counterparts. So, while the price tag might seem high, they can offer greater access for families with more limited means. As tuition hikes at universities in states like California become more common place, financial aid will become an increasingly important tool for more and more families. And those with the cash, might just end-up paying more.

The available options are broken down into grants, work-study programs and loans.

Grants are funds for college that do not have to be re-paid. Popular federal programs include the Pell Grant and the Teacher Education Assistance for College and Higher Education Grant (TEACH Grant). When it comes to award amount, there is a wide-range.

Work-study programs allow your child to earn funds towards tuition while he or she is enrolled in a particular university, college or training program.

Qualifying for grants and work-study programs depend on need, which is determined based upon what you are able to contribute to your child’s education, according to your income and assets.

Finally, a number of student loan options exist. Sallie Mae is well-known in the education world for providing federal and private student loan programs for undergraduate and graduate students and their parents.

Some student loans, such as the Federal Perkins loan, are sponsored by the university or college, whereby the university or college functions as the lender. Other programs, such as FFEL Stafford loan programs, use a third-party lender who is required to pay the interest on the loan while your child is in college. Eligibility for specific loan programs, especially loans incurred for graduate or professional degrees, can depend upon creditworthiness. So it is important to help your child establish good credit practices early-on.

Scholarships

According to College Board, a non-profit organization dedicated to helping parents and children plan for college, thinking local is the first plan of attack when researching scholarships. Smaller geographical locations offer better probabilities when it comes to securing a scholarship. Next in line are scholarships that are more national in scope.

Keep-in mind that some of the industry or professional organizations to which you belong and even your employer might be a source for financing your child’s education through a scholarship.

While academic performance can often be a predictor of success when it comes to securing a scholarship, it isn’t the only factor. Options exist that usually consider your child’s other attributes and aren’t just for the 4.0+ student. Sallie Mae has a fairly comprehensive scholarship database, a searchable link to more than 3 million scholarships worth over 16 billion dollars. According to the organization, it is expanded and updated daily.

A critical path

There is a lot of work that goes into college planning. And while paying for college might seem daunting at first, getting started now can make a big difference for you and your child. CloudFi’s college savings tool offers a personalized, step-by-step guide to 529 plans to help you get started on the college savings track. The more you save now, the less you will have to borrow or leave to chance.