Are you saving enough for college?

By Joe Messinger, CFP®

March 31, 2023

3 min READ

The month of April is financial literacy month. We are focusing on financial literacy in the realm of saving for college – a goal that many families are working toward! Many people may not be excited about this, but we are enthusiastic — so let’s dig into one of the most common questions our team receives:

Am I saving enough for college?

Often, we talk about how to minimize the cost of college, and many of our readers are families almost ready to pay for college. College is a few years away for them. At that point in time, we have a pretty fixed amount of money saved. We work with your resources to find a college that fits your student academically, socially, and financially while minimizing student loans.

But what if you are a parent whose children are younger? How do you know if you are saving enough to set you and your kids up for future success?

Younger parents need to hear this message!

The cost of college is rising sharply—approximately 5% per year. A baby born in 2016 will graduate high school in 2034. The cost for 4-years at a public university will be more than $200,000! We fully agree that reform needs to be a part of the equation, but the reality for families is that the cost of a college education will continue to rise. It’s a simple economic principle of supply and demand.

Procrastination can lead to a huge funding gap you must fill from some other bucket. To be clear, every family wishes they had saved more for their kid’s college education. Every penny is pinched, and what is left to save for college and retirement is a push with paying for traveling soccer, lacrosse, etc. You wake up one day and the kids are seniors in high school.

If you visit the “Price of Procrastination” calculator, you will see that to achieve 100% funding for your future 2034 grad, you would need to save $511 per month if you start when your child is one. That figure is pretty big, especially if you are starting your career and paying back your own student loans.

But if you wait to start saving until your child is 9, you’ll need to save $1,219 monthly! You can see how procrastination and compound interest affect your account balance. Not to mention that you need to balance paying down your own student loans with saving for the future. How do you do that? Another blog post for another time, but the short answer is:

Just start.

Even if it’s small. Future you will thank you!

What can you do?

Get started. Don’t panic…it’s never too late. And it’s never too early! Start by downloading your free College Money Report™ to learn what colleges think you can afford, whether you’ll qualify for grants and scholarships, and what you can expect to pay out of pocket at different colleges and universities.

Next, start saving.

The predominant tool for college saving today is the 529 plan, and for many good reasons. These plans are easy to use and have great benefits:

• Tax-free growth
• Tax-free withdrawals for qualified education expenses
• Deduction on some state taxes
• You stay in control of the account.
• Low maintenance and flexible

Younger families may feel paralyzed by those figures above. Getting started is the key. Pay yourself first. Even $25 per month will get you started. For many families, when your little one starts Kindergarten, you lose the cost of daycare. Instead of spending that money, save the money you would have spent on daycare into the college fund.

Get help. Family members, especially grandparents, may want to help. Take a moment to read this blog post about how grandma and grandpa can help—and not hurt—your college savings plan and their retirement. Also, check out some estate tax planning tips they can use.

Someday when your baby is headed off to college, you will be grateful for every penny you saved today. So take that first step!

Updated April 2023.