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January 4, 20196 of the Most Popular Investment Options for College Savings
March 19, 2019When Should I Start Saving for College?
As a father of three, I’ve often asked myself, “When should I start saving for my kids’ college educations?”. With dollars flying out faster than they’re coming in, where do I find the extra income in my budget… especially when life just happens? However, I feel like I have to start making plans! My kids are rapidly approaching their college years, with my oldest just four years away from beginning her higher education journey. Coincidentally, my kids will be in college for at least 12 consecutive years! So obviously, the sooner I start saving for my kids’ college educations, the better. Yet, before I start saving for college, there are a few things I need to do first… and so do you.
Straighten Out Your Finances First
The absolute first thing I say is: “You need to have your financial house in order.” Yes, you need to take certain steps to secure your own financial stability before you set money aside for your children’s college education.
- First, have an emergency fund in place. Typically, I recommend setting aside 3-6 months of living expenses in a liquid account. You don’t want to have to rob your kids’ college fund when life happens, so be prepared.
- Next, pay off your unsecured debt. This means your credit cards, lines of credit, or other things of this nature. You really don’t want to be putting money back while you’re paying interest on a credit card. Get it paid off first!
- Last, save at least 10% of your earnings for your own retirement. It may seem strange to think of doing this before saving for your kids’ college educations. However, you cannot finance retirement. If worse comes to worst, though, you can finance college. Additionally, retirement is inevitable, but college may not be. Children take different paths, and as much as we want them to go, college may not be the route they take.
Then Start Saving for College
AFTER you get your financial house in order, THEN you can start saving for your kids’ college educations. Yet, you must make the following decisions:
- Where will you put the money you’re saving for college? Will you open a 529 plan or an Educational Savings Account? Is there a better place to put the money to maximize your returns?
- Next, how much of your children’s education do you want to cover? Will you fund just the first year or all years? Will you split the tuition with your kids? No matter what, you need to decide how much you want to contribute so you know how much you need to save.
- Finally, where do you think your children will go to school? You may not know the exact college or university, but you’ve got to plan for something. Will it be public or private…in-state or out-of-state…community college or technical school? Once you know where your children might go, then it’s time to punch in the numbers. To forecast the costs, figure out how much those schools cost today and account for inflation at 8% per year.
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No matter what decisions you make on this, the key is to start saving as soon as possible because college is expensive. Most likely it will cost you more than you think. However, get your own financial house in order BEFORE you start saving for your children’s college education.