The cost of college education is a hot topic in recent years. With tuition rates spiking and student loan debt at all time highs, it’s important to start planning for your children’s college expenses now. But how much will you need to have saved by the time your toddler is ready for higher education?
As a starting place, check out the tools at CostofLearning.com. There you can look up costs for specific colleges, like your alma mater or the public university in the state you currently live. Of course, you have no idea where your kid will actually end up going to school, but this gives you a good starting point. You could also look at it as a financial decision point for yourself: you could set your target to pay for public school, and if your son or daughter wants to go to private school, they will need to make up the difference in cost themselves.
To figure out your monthly savings goal, add up the costs for four years at the school you chose. Keep in mind these are current costs; to get the future cost, you’ll need to account for future tuition hikes and inflation. A handy online calculator can help with that.
Once you’ve figured out your savings goals, you will want to open an account specifically for college savings. The most tax-friendly account option is called a 529 savings plan. There are lots of advantages to opening a 529 including high contribution limits, tax-free dispersal (if used for qualifying higher ed expenses), and tax deductibility in some states. You can read more about the specifics here.
Finally, you will want to account for this new goal in your Personal Finance Worksheet. Keep in mind that you may not be able to afford the full monthly amount to start; you may need to start smaller and ramp up as your income increases. That’s okay. Just remember that anything you put away earlier will benefit more from compounding interest. But really, anything you can save will help. Just take it one month at a time.
Have you already started to save for your kids’ college? Share your experiences in the comments below!
Please note: I am not a financial expert and speak to financial topics from my own personal experience. Please consult a financial professional before making any of your own personal financial decisions.