Children are expensive, we have a 1 year old daughter, and diapers, toys, clothes, and daycare add up very quickly. But one of the larger expenses associated with kids is their college education, which means that considering how that will work is imperative. Consider the following points about saving for a child’s college education.
For the 2015-2016 school year, the average in-state on-campus public school costs came in at $19,548 for a four-year public school. That number climbs to $34,031 when a student is attending school out of state. Private schools cost an average of $43,921, while a two-year public commuter school was “just” $11,438.
Realistically, the earlier that you can start saving for your child’s college the better. The longer you allow money sit in a 529 or other investment account, the more interest you can make from it. If you start saving money when your child is just a baby, $5,000 can turn into $19,980 over a period of 18 years. assuming an 8% interest rate. If you started with $5,000 and contributed $100 each month, that account would balloon up to $68,500 by the time your kid is ready for college. But the truth is that the monthly payments are more important than the initial amount, so even if you don’t have $5,000 to stash away now, all hope is not lost. If you had $0 saved now but contribute $100/month for the next 18 years, that would result in a whopping $48,500!
Start Saving as Soon as Possible
The simple answer to the question about when to start saving is to start saving as soon as possible. But in reality, that’s not always possible and there are other priorities in many people’s lives that push saving off until that promotion or raise comes. If you’ve got a child who is 10 years old, you’d need to sock away $350/month for 8 years to hit the $48,500 mark. This just underscores why saving early and often is so important!
Of course, not everyone needs to pay for their children’s college education. I think it’s very important for students to have some “skin in the game” when making college decisions, and it can often lead to your kids taking school more seriously. Hopefully they make smart decisions and go to cheaper schools, but taking out some student loans to cover the cost of education doesn’t need to be avoided at all costs.
But Always Put Yourself First
Most parents would prefer that their kid isn’t entering the job force with debt hanging over their head. As many as 70% of students do end up taking that route. For example I had about $25,000 in student loan debt when graduating. Have your child investigate scholarship opportunities, too!
Keep in mind that your own savings are important to protect as well. You should not be giving up your own retirement account to help pad the college fund. While student loans are always available, the same does not hold true for a retirement fund. Another option is that if you’re in a more secure financial situation when your child has graduated, you can help pay off the student loans.