Both the price and the essentiality of attending college are on the rise. Earning just a bachelor’s degree increases your potential income to over $25,000 more annually than those with only a high school diploma. Additionally, unemployment rates directly correlate with level of education . Put simply, education increases wealth and decreases the chance of unemployment.
Creating and contributing to a college savings plan enables you to financially support your children in their educational goals. Although saving such a hefty sum of money may seem daunting, these three key principles will help you create a personalized plan to save for your children’s college with ease.
1. Estimate the Cost
In 2017, the average cost of tuition and fees for four years at an in-state college totaled just under $40,000 dollars. This price increases drastically for out-of-state schools ($95,560) and private institutions ($129,640). Prices continue to climb when you factor in additional expenses including housing, food, books, and transportation.
But before you start plugging those numbers into a calculator, remember that tuition and fees rise hundreds of dollars every year at an inflation rate that averages between 3-4% . If this pace continues as expected, in 10 years the total cost of tuition and fees for a public, in-state degree will likely exceed $60,000. In twenty years the price could be well over six-digits.
Also, keep in mind that you may not need to cover every penny of your child’s college expenses. Grants, loans, and scholarships deliver much needed financial assistance, although they will likely fall short of the total cost of tuition, housing, books, and additional costs.
As parents, discuss what college type you will financially prepare for your child to attend. The drastic cost differences between public, private, in-state, and out-of-state universities call for different savings goals. Decide which expenses you plan to cover (tuition, fees, books, all of it, a portion of it, etc.). Meet with a financial advisor to better understand what sum of money you should prepare to save to meet your child’s educational needs.
2. Create a Savings Plan That Will Work for Your Family
Once you have estimated how much college is going to cost, you can begin creating a savings plan that fits your family’s individual circumstance.
Qualified Tuition Programs, or 529 plans, stand as the most highly recommended college savings plans. 529 plans allow for higher contributions than many other plans, enabling parents to reach their goals regardless of the age of their children. In addition, withdrawals from 529 plans are tax-free when used for educational purposes.
Other savings options include investments, IRA’s, and general savings accounts. Speak with a financial advisor to determine which option best fits for your financial situation. These experts can answer circumstantial questions and provide clarification for your unique needs.
Once you choose a savings option that will help you reach your goal, decide how much you will contribute each month, quarter, or year to your college savings fund.
3. Put First Things First
As in any financial plan, prioritization promotes success. Some financial needs trump college savings while others can be sacrificed.
DON’T put college savings above retirement savings. You may be conflicted by a desire to put your children’s needs above your own; however halting your retirement savings places you in a risky situation. Retirement years last much longer than college years, and there are no loans for retirement. Contribute to your retirement account as usual and find other ways to cut costs.
DON’T put college savings above paying off debt. Pay down debt first, or at least have a plan in place to do so, before you begin saving for college. Talk to a financial planner to see how you can pay off debt as quickly as possible.
DO cut costs in other areas. This article here (https://www.truenorthwealth.com/articles/3-things-to-cut-back-on-for-early-retirement) discusses how to cut costs to retire early; the same tips can be used to put money away for college. Ideas include eating out less, buying used cars instead of new, and refinancing your house at a lower rate. Any or all these things can help you put hundreds of dollars a month into a college savings fund.
As college education becomes ever more important, adequate financial planning will provide your children with the financial capability to graduate from college while staying debt-free. Our children are the leaders of tomorrow; we promote their success by the planning we do today.
At TrueNorth Wealth, we are fee-only retirement advisers dedicated to our clients’ goals. Find out more about how a dedicated financial advocate can improve your long-term financial outcomes and relieve your financial stress.