Where do you begin when the time comes to start working on your child’s college choice? I think there are two key decisions: 1) How much can you afford?, 2) What kind of school would be the best fit for your child?
How Much Can You Afford?
There are several elements that come into play when looking at how much you can afford. You will want to assess the following:
- Current college savings
- Monthly cash flow that you want to contribute towards paying your child’s college bills
- Potential financial aid your child will receive
- Potential earnings that your child can contribute by working while attending college and working summers
Let’s look at current college savings first. I remember when I first realized we hadn’t saved enough. In the fall of my oldest daughter’s sophomore year of high school, she attended a college fair. I think it was sometime after I started looking through all of the college brochures she brought home that I started to panic. I was not financially prepared to send her to college! Like many parents, we were diligent about establishing college funds for our three daughters when they were little. I set up a direct withdrawal into a 529 plan. I even set up an UGMA for my oldest when I got a good bonus one year. The accounts all had their little deposits going in every month. The key word here is “little.” I had never thought about increasing amounts. I had bought into the myth that if you start early and put a “little” bit away every month, it will grow to what you need. Now here she was, 15 years old, three years away from college. I added up what was in her UGMA and her 529. I got out all the savings bonds she had been given as a baby and looked up their values online. I took the total of everything we had saved so far, then looked at the price per year at many of the colleges I wanted her to consider – not even close! We would be lucky if we could foot the bill for one whole year, let alone four! And then there were her two younger sisters who only had 529 accounts …
I walked around with a pit in my stomach for weeks. The college savings dilemma was always on my mind. How would I rectify this situation in less than 3 years? What could I even do? I started to wonder, why did I ever think we would have enough? I decided the first thing I needed to do was take a closer look at my household budget. I needed to understand where all the money left after monthly bills was going and how much more I could conceivably start putting away each month to fund college for all three girls. I wanted to make sure I wasn’t cheating retirement savings because that should always come first. When I completed this examination of the budget, I found that I was able to increase our contribution to each child’s 529 plan threefold. It gave me a little sense of relief, but I knew I still had a long way to go towards figuring out how much I would need to send my oldest daughter to college and where it would all come from.
In my next post, I will talk about ways to increase your college savings and finding the best places to put the money. I will include some links that have been helpful for me.