Step One: Evaluate your financial situation
Answering the following questions will help jump-start your planning process. There are web-based financial calculators available to help you in the planning process, as well. In addition to those available to you from your retirement plan provider, check out the calculators on the American Savings and Education Council’s “Choose to Save” website: www.choosetosave.org/calculators/.
Step Two: Know your bottom line
Once you know what your financial situation is, the next step is to determine what you can afford to put aside each month. First, prepare a detailed family budget that lists all of your income and expenses. After that, you’ll need to decide how to divide up your funds.
Step Three: Multi-tasking
Ideally, you want to try to pursue both goals at the same time. Even if you can allocate only a small amount to the college fund, you might be surprised at how much you can accumulate over many years. For example, if you saved $100 every month and earned 8%, you’d have $18,415 in your college fund in ten years (of course this is just a hypothetical example for illustration purposes, and does not represent a specific investment).
If you need help, you can consult with a professional financial planner. This person can also help you select suitable investments for each goal. Remember, just because you’re pursuing both goals at the same time, it doesn’t mean that the same investments will be appropriate. Each goal should be treated independently.