College Savings Solutions
How much should I save for college? What is the best investment option I can use for college savings? Two common questions asked, however the solution will depend on every person’s unique situation.
Interesting facts to point out:
- According to The Institute for College Access & Success (“TICAS”), 68% of college graduates had student loan debt with an average of $30,000 per borrower (www.ticas.org).
- Published four-year college tuition and fees (as stated on www.collegeboard.org) averaged $9,410 per year for public college (in-state students) and $32,410 for private college.
So, how do you save for college without compromising your own financial success; and what are the appropriate investment vehicles to utilize? Those are the questions I will be answering in a two part college savings blog post.
How Much and How to Save:
First of all, there is no one-size fits all amount you need to set aside each year towards college. Instead, the amount you need will depend on the student you are saving for and your family’s situation.
That being said, the earlier you start to save the better. Not only will the initial amount grow, but the longer it is invested, the more interest you will earn. This will result in a higher overall return.
Let’s look at a quick example – a family with a two-year-old, starts saving $300/month ($3,600 a year) in an investment set aside for college with an average annual return of 5%. Sixteen years later, when the child turns 18, that balance will have grown to approximately $87,973. If that same family waited until the child was ten-years-old, their investments would only be approximately $28,800, a $59,173 savings differential.
College Savings contributions:
- Look at your overall monthly budget, how much can you regularly contribute towards college savings without having to eat PB&J for dinner? Can you cut back on some monthly expenses (eating out for lunch or buying coffee every morning)? Setup regular transfers of this amount into your college savings account.
- Allocate a part of your child(ren)’s gift money received from friends and family that will also be put towards college.
- Looking forward toward your tax refund? Or maybe you’re going to be receiving a bonus at work? Reserve a portion of it towards college savings.
- Start saving early and often.
- Take a hard look at your monthly budget and determine what you can contribute each month.
- Put aside some of the kids’ gift money for college.
- Allocate some of the unexpected money you receive (tax refund, bonus, etc.) towards college savings.