This is your college fund
Our daughter is 11 years old, and we save $50 a month for her. Right now, we've accumulated $4,200 for college, a car or just savings in general. Should we be investing this money, instead of putting it in a savings account?
If I'm in your shoes, I'd choose college as the focal point over the other things you've mentioned. My advice would be to move that money into a 529 Plan with mutual funds inside. That way, it will grow tax-free from this point forward. Then, if you continue to set $50 a month aside for her for seven more years-and the stock market averages 11 to 12 percent-you'd have about $16,000 sitting there when she turned 18. That wouldn't fully pay for college, but it'd be a great start. Plus, she can apply for scholarships and grants and work and save to help make it happen.
As far as a car is concerned, I'd set up a separate savings account and agree to match whatever she saves. That way, if she can put aside $3,000 to $4,000, with the match she'll have a pretty nice car. But in my mind, college is the most important thing here. If you guys can afford these contributions, and she wants to go to college and will hold up her end of the deal, you can work together as a family and make the idea of a college education a reality!
Dave Ramsey is America's trusted voice on money and business. He's authored four New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover and EntreLeadership. The Dave Ramsey Show is heard by more than 6 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.