Education costs can be one of the most significant and daunting expenses that ever cross a parent’s path. According to a recent study by Fidelity, most families are “…on track to meet just one-third of their college savings goals.”
This is an unfortunately low percentage. “The average annual cost of a four-year college in 2020 will be $46,368, a 38% increase compared to the current fees.” (This average includes both public and private universities.)
Using the 2020 estimated average of $46,368 as a child’s tuition costs, you get a total of $185,472 over a 4 year period. And assuming an investment growth rate of 5%, one would need to save $22,779.64 per year for 7 years to cover the full cost of the education. That amount of savings is unrealistic for many parents. And that number does not even include a student’s other lifestyle expenses.
So what can I do??
Thankfully, there are many aids to paying for college, such as scholarships, student loans, and rich uncles. For those who cannot count on a rich uncle, there is no need to be afraid. Below are 3 simple steps that may help saving for education expenses become less scary.
Start Saving Now
Be proactive in your college savings strategy. Determine a realistic level that you plan to contribute to your child’s education, and make your savings plan accordingly. It may be difficult and will require discipline. But if your child graduates from college with minimal or no student loans, you will be glad that you made the sacrifice. You can also use this opportunity to find teachable moments for your children to learn about the importance of saving money.
Find the Account That’s Best Suited for You
There are many account options that can be used for college savings. Some have tax benefits, others have more flexibility, and some have better growth opportunity. Some examples include a 529, ESA, UTMA or IRA. Finding the best type of account for your situation can save money.
A CFP® Can Help Plan For College
A CERTIFIED FINANCIAL PLANNER™, also known as a CFP®, will be able to assist you with the first two steps, taking some of the pressure off your shoulders. A fee-only CFP® can offer you non-biased guidance in your college savings efforts. Fidelity’s study found that “92% of families working with a financial professional feel confident they will reach their college goals.”
It is important to keep in mind that paying for your children’s education expenses should not interfere with your own long term financial goals. Please contact us to discuss the best strategies for your family.
Check out other college related posts we’ve written:
- Thinking Outside the 529 Box
- College Planning in an Uncertain World
- College Planning – Financial Aid and Tax Credits
Photo credit: Flickr – KoKo Krispy
