Let me tell you a quick story.
My parents and I are first generation immigrants to this country, money was tight growing up, but my mom always instilled education as a core value in our family because she was a teacher back home.
I knew not going to college was not an option. After all, my parents gave up their prior life in Colombia, so that I could have a better future here in the United States.
I ended up going to college on a 75% scholarship that paid for tuition only. That meant I had to figure out how to pay for books, food, and all of the other stuff that goes with living and going to college.
The natural choices were, taking out a bunch of student loans and working while going to school.
I ended up choosing a combination of both, leaning heavily towards working.
It was freaking hard! I even remember losing some of my hair because I was so stressed, I am not making this up.
Looking back now, I am incredibly grateful for my experience. I graduated from college with a finance degree, but most importantly, I graduated with a clear understanding of how to manage my finances.
I know that as parents we want the best our kids. How much we save for our kid’s college is influenced by our values and current financial situation.
Many you are paying a mortgage, daycare, and even paying your own student loans. Where should you start? You can start here.
Retirement VS. College
Don’t even think about saving for your child’s education if you have a lot of high interest debt or have not built up an emergency fund. Handle that business first.
Everyone else who can afford to put money aside should. Even a little will go a long way if you start early.
I am of the opinion that you should highly prioritize funding your retirement vs. saving for your kiddo’s college fund. After all, they can borrow to go to college, but you will NOT be able to borrow for retirement.
I meet with clients who worry about having to take care of their parents during retirement. Please don’t do that to your kids.
FIND THE BALANCE
You will need to consider how to balance the two goals of retirement and college savings. At Green Mountain Planning I walk my clients through different savings rates- for retirement and savings- to help them make a more educated decision.
THINK OUTSIDE THE BOX
Consider asking your family members and friends to contribute to your child’s 529 plan instead of buying them another toy.
Also, consider getting a credit card that gives cash back rewards and depositing those rewards directly into a 529 plan, Fidelity Investments has a great credit card and 529 programs.
Crunch the Numbers
The total cost for a four-year public in state education, starting roughly 18 years from now will be about $219,914. This data assumes a 5% inflation rate on education cost.
In order to be 100% funded, you will need to start saving roughly $5,600 every year, assuming a 6% rate of return.
How to win at saving for College
- Open up a 529 account.
- Save what you can.
- Crunch the numbers.
- Get help.
Getting started is hard, but you have to start somewhere. I know you are probably feeling overwhelmed, but the good news is that I am here to help. Let’s set up an appointment to talk about your situation.
About the Author
Nestor Vargas provides comprehensive financial life management to help families and professionals, better communicate about their money life, accelerate their savings plan, and live a purposeful life. As a fee-only, fiduciary, and independent financial advisor, he is never paid a commission of any kind and has a legal obligation to provide unbiased and trustworthy financial advice.