Education Planning

Getting A Head Start On College Savings

The American family with a child born today can expect to spend about $233,610 to raise that child to the age of 18. And if you’ve already traded that supercharged convertible dream for a minivan, you can expect your little one’s college education to cost as much as $198,000.

But before you throw your hands up in the air and send junior out looking for a job, you might consider a few strategies to help you prepare for the cost of higher education.

First, take advantage of time. The time value of money is the concept that the money in your pocket today is worth more than that same amount will be worth tomorrow because it has more earning potential. If you put $100 a month toward your child’s college education, after 17 years’ time, you would have saved $20,400. But that same $100 a month would be worth over $32,000 if it had generated a hypothetical 5% annual rate of return. (The rate of return on investments will vary over time, particularly for longer-term investments. Investments that offer the potential for higher returns also carry a higher degree of risk. Actual results will fluctuate. Past performance does not guarantee future results) The bottom line is, the earlier you start, the more time you give your money to grow.

Second, don’t panic. Every parent knows the feeling – one minute you’re holding a little miracle in your arms, the next you’re trying to figure out how to pay for braces, piano lessons, and summer camp. You may feel like saving for college is a pipe dream. But remember, many people get some sort of help in the form of financial aid and scholarships. Although it’s difficult to forecast how much help you may get in aid and scholarships, they can provide a valuable supplement to what you have already saved.

Finally, weigh your options. There are a number of federal and state-sponsored, tax-advantaged college savings programs available. Some offer prepaid tuition plans and others offer tax-deferred savings. (The tax implications of education savings programs can vary significantly from state to state, and some plans may provide advantages and benefits exclusively for their residents. Please consult legal or tax professionals for specific information regarding your individual situation. Withdrawals from tax-advantaged education savings programs that are not used for education are subject to ordinary income taxes and may be subject to penalties.) Many such plans are state sponsored, so the details will vary from one state to the next. A number of private colleges and universities now also offer prepaid tuition plans for their institutions. It pays to do your homework to find the vehicle that may work best for you. Check out our other blog articles to learn more about Saving with 529 Plans.

As a parent, you teach your children to dream big and believe in their ability to overcome any obstacle. By investing wisely, you can help tackle the financial obstacles of higher education for them – and smooth the way for them to pursue their dreams.

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About Christopher Walsh, CFP®

I’m a Wealth Manager with Keystone Financial Partners, who has created a financial planning platform dedicated to helping young professionals make better decisions with their money. I was born and raised in the Hudson Valley region of New York, just north of New York City. I moved to Raleigh in 2010 with my wife, Lauren, our daughters, Aubrey and Ella, and our golden retriever, Duncan. When I’m not keeping up on financial news or meeting with clients, you’ll find me checking out local breweries with friends, hitting the golf course, taking trips to the beach, or spending time with my family. I started my financial planning career in 2006. I became a CERTIFIED FINANCIAL PLANNER™ professional in 2012. I chose this career because I absolutely love it – I truly enjoy taking complex issues and helping clients understand them. We help our clients reduce taxes, invest smarter, and retire on their terms.