Note: This is the first post in a series I’m running this week on saving for college.
When I fiddle with online calculators to determine how much I should be setting aside for my newborn and toddler to use for college, it makes my stomach drop.
This calculator on Smart Money thinks I should be saving $435 per month for the baby and $470 per month for the toddler. Gulp. Combined, that’s $905. That’s $145 more than my rent!
I assumed the default figures of 5% college inflation and 6% return on the investment. I also assumed they’ll be going to in-state public schools for 4 years.
This calculator at Saving For College has a few more values I can tweak.
I assumed a cheaper school — one more around $15k per year at today’s costs. It’s saying I need to do $336 monthly for Vivienne and $362 monthly for Jonathan. Yikes.
It’s impossible to know exactly how much the expenses will be 16-18+ years from now. We can’t know what true tuition costs will be, how much our investments can grow, and what sorts of scholarships the kids will be able to land. These calculators can only give us a vague idea of the kind of money we’ll need to scrape together.
In a more practical sense, I think it’s best for a family to save as much as they can reasonably afford.
Saving for college is Dave Ramsey’s baby step #5. To be at this step, Dave says you should have all of your debts paid, an emergency savings of 3-6 months of expenses, and be saving around 15% toward your retirement.
Once all those things have happened, he says it’s appropriate to start the college funds.
But part of our long-term financial plan for our family is to live in a house and pay it off in 15 years or less. Doing so will save us money in interest, and also having a paid-for house will free up extra funds for us to pay for education later. Ideally, we’ll be in that house within the next year or three.
So before we start saving as much as we can reasonably afford for college, we’re going to make sure we have enough for our down payment and closing costs. That’s our baby step #4B.
I’d still like to start savings plans for them and save a small amount each month until that happens, just to get it going.
Here’s my opinion on a few matters of priority. You may disagree:
- If you have credit card debt, pay that off before saving for college.
- If you have other debt — your own student loans, a car loan, whatever, consider paying that off before starting a college fund unless the debt is extremely low-interest and it will take you several years to pay off, even if you accelerate your debt payments. But paying off your own debts first is probably the best approach.
- You really, really, really should be saving enough for your retirement before starting a college fund. Your kids can find other ways to advance their education (even if that means taking out a loan). You need to have the means to pay your bills in old age.
- Don’t withdraw from your retirement plan to cover tuition.
Lastly, while I do hope we can put a big chunk of money aside for the kids for school, I don’t want it to come at the expense of their childhood. I want to have nice family vacations, for example. I want to be able to afford other worthwhile things during their little years. You know? There has to be a balance.
Once you look at your overall financial picture, decide how much you can put away each month, this year. Revisit that figure periodically and bump it up if you can, or reduce it if it’s causing some strain. If your standard of living is comfortable, you can put all extra found money (bonuses, pay increases, garage sale proceeds, etc.) into the college fund.
Automate your contributions and make them a regular part of your budget.
We might be able to surprise ourselves and save a lot more than we thought possible, but even if we don’t, saving something is better than not doing anything about it.