The longer you wait to start saving for college then the more you will have to save to pay those inevitable college bills. As they say the key to saving is starting. Saving does become easier once the funds begin to grow and compound. Studies show that students who have family savings earmarked for college allows them more flexibility and increased odds of attending college and graduating with little to no personal debt. This is why you should start saving for college now. You are setting up your child to succeed in life and yourself to retire comfortably one day.
For those starting college in 2017, you will want to have set aside $100,000 to $200,000 per child for college education as shown in the College Start year of 2017.
The table below shows the total cost of college expected per child starting in the years listed.
|Birth Year||College Start||Total Cost of College per child|
|1999||2017||$100,000 – $200,000|
|2002||2020||$115,000 – $230,000|
|2007||2025||$150,000 – $300,000|
|2012||2030||$190,000 – $380,000|
|2017||2035||$240,000 – $480,000|
|2022||2040||$305,000 – $610,000|
Although there is no way to know the exact cost of college many years in the future we used the 5% rate of inflation experienced since the nineties in the table above. This is an inflation rate greater than all other US products and services, including healthcare.
For a starting point we use the 2017 annual total cost of college of $20,000 for in-state public universities and $40,000 for in-state private universities or out-of-state public universities. We also planned a fifth year of college to complete the degree. When planning how much to save, it is best to be conservative and that you will have no scholarships or loans.
How Can You Start Saving For College Now?
- Employer Direct Deposits. Many employers offer direct deposits from your pay check to savings accounts or savings plans, such as a 529. This is a favorable and popular feature since it is an automated method.
- Pay Yourself First Approach. You can initiate these contributions on pay day before any other expenses are paid. It has been proven that this savings approach is the most effective. It is referred to as the “pay yourself first” approach where the money is invested before you even have a chance to spend it.
- Automatic Withdrawals From Checking. You can arrange automatic withdrawals from your checking account to coincide with your pay dates and have the funds directed to your savings account.
- Write A Check. You can also write a check. This approach requires a manual step, one which you must both think about and DO, which puts the check writing at risk each and every month.
The bottom line is to get started. And try to automate.” – Hired Graduate
There are both tax advantages and time value of money principles in your favor to starting now and to saving a consistent amount over a period of time. Not starting will cost you more later, especially if it means getting loans.
The Cost of Waiting Table calculated at John Hancock Investments shows how much more you will have to pay per month for each year that you postpone starting your saving for college. The table illustrates the monthly savings amounts required if your child were ten years from starting college.
Another neat calculator is available at SavingForCollege.com and allows you to enter and modify some key variables to calculate monthly investments you should consider investing.
You can see what is referred to as the World’s Simplest College Calculator below:
Saving For College Should Not Be Optional
For the most part, human beings are an overly ambitious spirit, with a can-do, will fight and will win attitude.
When faced with a decision to spend what we have now versus save money over time, the temptation to spend is mighty strong. It is always easy to justify the spending. We will always make more money if we need it.
But consider the overwhelming evidence that the odds of going to college and completing college is far higher for families that have college savings. Over 2 million high school seniors graduate high school each year and set off for college. But almost half of these students drop out of college before graduation. One major contributor to the high drop out rate is the high cost of college and the fact that students run out of the funding needed to remain in school.
The Many Benefits of Saving For College
- Saving for college instead of borrowing for college can cut the total cost of college by more than half
- Families can reduce the amount of college loans they are taking on
- Families can earn a tax-free return on their investments in investments such as 529 plans
- Families can avoid paying interest on debt
- Families with savings set aside dramatically increase the odds of attaining graduation
- Families with college savings can help their students graduate college debt-free or near debt-free
- The thing is that you never know what is in your future. Parents need to focus on intentional saving to cover emergencies, unplanned time off of work, college and retirement
- Saving will better support your goals of achieving sound financial health and a life of better sleeping
Yes, your kids should go to school. No, you shouldn’t bankroll their degree whatever the cost. You’ve spent your life creating a sound financial plan; don’t upend it by suspending your retirement savings or taking out a home equity line of credit to pay for a pricey college.” – Suze Orman
Avoid The Alternative of High Debt Burdens
Remember The End Goal Of Saving For College
The end goal is achieving a degree with a job offer and limited debt.
There is ample evidence that demonstrates that a higher education built on a foundation of the college degree yields a lifetime of higher earning with good benefits and improved happiness.
So parents if you have not started saving yet, then consider this a wake up call and plan to save $50 starting this month.
If you have a decent time horizon (greater than five years) it may be worthwhile to consider a 529 plan due to the various tax benefits.
You can check out my article titled How To Open A 529 Account To Save For College (Step by Step).
Remember to be awesome.
Information is for illustrative purposes only and is not intended as investment advice. Please consult a financial advisor and accountant for advice specific to your financial situation. Hired Graduate does not provide financial services and any information shared should be verified with a financial advisor and/or accountant.