A Focus on Saving
The month of September is “College Savings Month.” So, Happy College Savings Month to you. I know, try to control your enthusiasm.
But we are enthusiastic! Often we talk about how to minimize the cost of college, and many of our readers are families almost ready to pay for college. College is a few years away for them. At that point in time, we have a pretty fixed amount of money saved, and we work with your resources to find a college that fits your student academically, socially, and financially while minimizing student loans.
But what if you are a parent whose children are younger?
Younger parents need to hear this message!
The cost of college is rising sharply—approximately 5% per year. A baby born in 2016 will graduate high school in 2034. The cost for 4-years at a public university will be more than $200,000! We fully agree that reform needs to be a part of the equation, but the reality for families is that the cost of a college education will continue to rise. It's a simple economic principle of supply and demand.
Procrastination can lead to a huge funding gap you will need to fill from some other bucket. Just to be clear, every family wishes they had saved more for their kid’s college education. Every penny is pinched and what is left to save for college and retirement is a push with paying for traveling soccer, lacrosse, etc. You just wake up one day and the kids are seniors in high school.
If you visit the “Price of Procrastination” calculator, you will see that to achieve 100% funding of your future 2034 grad you would need to save $511 per month if you start when your child is one. That figure is pretty big, especially if you are just getting started in your career and paying back your own student loans.
But if you wait to start saving until your child is 9, you’ll need to save $1,219 per month! You can see the effect procrastination and compound interest can have on your account balance. Not to mention that you need to balance paying down your own student loans with saving for the future. How do you do that? Another blog post for another time, but the short answer is just start. Even if it's small. The future you will thank you!
What can you do?
Get started. Don’t panic…it’s never too late. And it’s never too early! The predominant tool for college saving today is the 529 plan, and for good reason. These plans are easy to use and have great benefits:
- Tax free growth
- Tax free withdrawals for qualified education expenses
- Deduction on some state taxes
- You stay in control of the account.
- Low maintenance and flexible
Younger families may feel paralyzed by those figures above. Getting started is the key. Pay yourself first. Even $25 per month will get you started. For many families when your little one starts Kindergarten you lose the cost of daycare. Instead of spending that money, save the money you would have spent on day care into the college fund.
Get help. Family members especially grandparents may want to help. Take a moment to read a previous blog post about how grandma and grandpa can help—and not hurt—your college savings plan and their retirement. Also check out some estate tax planning tips they can take advantage of.
Someday when your baby is headed off to college, you will be grateful for every penny you managed to save today. So just take that first step!