You’ll need about $250,000 to send your bundle of joy to college in 18 years. But the sooner you start, the less you’ll have to save. Here’s the best way to save for college.
First you feed them, clothe them and put a roof over their head for 18 years.
Then they want $250,000 to go drink beer, hook up and hopefully study a little. Jeech! The nerve!
But seriously – as parents, we want to give our kids every opportunity we can. And college is like the grand finale of providing opportunities.
But it’s just so expensive!
(And getting expensive-er. According to The College Board’s Trends in College Pricing 2019 report, college inflation has come down the last 5 years. But the 15 years prior to that it that, it grew more than TWICE the rate of normal inflation.)
Not saving enough – or worse – starting to save too late – or worst – not saving at all – can have repercussions far beyond those 4 years when your kids become adults.
According to the Department of Education over 40% of college students require student loans to attend college.
And those student loans stay with them for a long, looong time. Also according to the Department of Education, the average student loan isn’t paid off for over 20 years!
That’s 20 years after graduating with an albatross hanging around your adult child’s neck, impacting everything they do.
But there’s a worse fate than 20 years of student loan debt…
Yes, your kids love you. No, they don’t want you living with them.
But that’s a potential reality for parents who don’t save the right way for college.
They find themselves short a few years out from college and then they stop saving for retirement – or worse – use their retirement accounts to pay for the shortfall.
Next thing you know, you’re 70 without enough money to pay your bills so you move into your kid’s basement and eat cat food the remainder of your life.
Not knowing how to save for college can have real consequences on you and your kids.
Let’s look at two extremes to illustrate the point.
The second best way to save for college is to save as much as you can as early as you can.
Assuming you have your emergency fund saved up and your short-term goals fully funded, then dump everything else into your kid’s 529 Plan.
When your RSU’s vest, sell them and put it in your 529 plan.
When your ESPP shares are purchased, sell them and put it in your 529 plan.
When your bonus arrives, “do not pass go” and put it directly into your 529 Plan.
Warning! DO NOT sacrifice the free money your company gives you through your 401k. Continue contributing to your 401k up to your company match.
We only work with young families, so college planning is a big part of what we do.
Schedule your Discovery Call today to see if we can help you!