One of the best ways to help individuals save more money is to show them pictures of their kids or grandchildren. The theory goes that it causes us to pause and reflect on how important our loved ones are. What would you do for your kids if they really needed something? You’d do anything it takes. Parents naturally feel a responsibility to at least help their kids afford the rising costs of attending college. This is a key part of the financial planning process.
$60,000 is about the average 4-year sticker price for attending a university in Michigan. A daunting figure for most people juggling to pay down their mortgage, afford expensive health insurance, save for their own retirement et cetera. $60,000 is also the cost of a fancy Tesla Model 3 Performance sports car, and so few of us can purchase that on a whim. So, we need a savings & investing plan of attack.
Parents need to ensure they are funding their own retirement before helping their children save for college. It sounds trite and selfish, we get it. Think about this – you only have one shot at funding your retirement. Sure, Social Security may assist, but the responsibility is growing evermore on you. Your kids, however, actually have a few things working in their favor to help pay for college.
There are many scholarship opportunities for students. There are even websites designed to assist with finding such scholarship programs. Students can also work while attending school or serve time at the university in a Resident Assistant type of role where the university compensates him or her with tuition assistance. Speaking of working, many companies now offer tuition reimbursement for student-employees. Finally, those emerging into the workforce have their whole careers to pay-off debt; a retiree does not have a very long horizon to pay for everyday and one-off major expenses in retirement.
It begs the question – how much to save for your children’s college?
While $60,000 is the average amount to cover, it can certainly range drastically. Worst case scenario is that your son or daughter does not get much in the form of scholarships and seeks to attend a high-cost university. Perhaps that run upwards of $200,000+. There is always the option to use student debt for such a case. So, let’s still aim to provide that $60,000 baseline figure.
As mentioned in a prior post, a 529 account is a great way to save. Make it a goal to set aside $100 per month into the 529 plan. $1,200 per year is about 1% of a $150,000 salary after taxes. If you do this for 18 years with an average return of 5%, you will amass about $75,000. After inflation, however, that is likely to equate to about $50,000. Aim for $100 per month, but at times stretch yourself to get towards $150 per month. Can you even do 2% of your take-home pay?
TFC can help you crunch all of these numbers and with the process as a whole. We are here to help you find the right 529 plan and the right investment vehicle to hold within a 529 plan. There are so many confusing options to save for college, but that is where we guide you through the process to set you and your children up for success.
Here’s the point:
You don’t have to pay for every last cent of all the costs of your children’s college. But we want to help you help them. Let’s look at what you can afford to save after ensuring your own retirement is on a good path. Shoot for $100 in college savings per month (about 1% of take-home pay per child), and if possible, contribute more.
Action Items:
- Meet with us to evaluate your specific objectives
- Ensure you are already saving for your own retirement
- As college-time approaches, talk with your kids about the responsibilities & strategy of paying for college