How Much Do I Need to Save for My Child’s Education?

With the ever increasing education costs of today, it has become extremely hard to decide on the amount of money that needs to be saved to ascertain that your kid reaches college. Sure your kid might not go to college and instead decide to be RMT North Vancouver, but you can’t count on it! Even if you are a late bloomer in the savings category, there is not much that is lost, yet! Let me help you wade through all the complex parts of savings and the kind of money that you need to save for your child.

The preemptive cost of education.

It would be safe to say that in the coming years, a period of let’s say 16 years for argument’s sake, the cost may have escalated to a staggering $250,000  minus the aids. That is a lot of money to save, isn’t it? Due to a great economist by the name of Mark Kantrowitz, it wouldn’t sound like an insurmountable figure anymore.

He recommends breaking down the cost into three parts, the first part being the money saved from your present income, another third used from the current income generated for the duration of the college and the last third from loans. If you plan on not taking any loans, you may keep the savings to two-thirds. After all, every dollar that is taken as loan ends up being paid back as $2, while your savings would, in turn, earn you interest.  Here is a video of Mr Kantrowitz talking about student debt.

When to start?

Right now! there is no better a time to start than the present, if you start right away you would have to save lesser per month compared to starting at a later point. Plan for the savings, make a goal that you want to reach and divide the cost equally over the month and the year periods.

How much?

You may start with a sum of $250 per month if you plan on taking loans, or a sum of $500 if you plan otherwise, this is an approximation based on the tuition fees of the average American colleges. The cost may differ for the elite schools, due to their assistance programs, and could, in turn, be lesser as compared to the other schools. The how much part broadly depends on the kind of college that you have in mind for your child. You should also definitely start preparing your child for college in elementary school.

If you want to avoid having to cope up with undue pressure at a later point of time, having to foot loans and then pay the mighty interest later, it is highly advisable that you start saving today, since, every dollar that you save today would be $2 less that you or your child may have to pay as interest.

Juggling Retirement and College Savings

Many parents are usually at a cross road as to either save for their retirement or college education for their children. With the growing economy cost of living is on the rise and that means you need to save even more money for your retirement. On the other hand, the cost of college education is high especially with the private colleges and is set to get even higher in future. Trying to save for retirement and college could be overwhelming, and the amount of the two accounts may never be enough to achieve the intended objective.

Savings for retirement

Even as your children are almost getting to college it is important you keep your focus on retirement savings. The saving could be made either in a personal savings account, company pensions or with social security funds. After you retire, the funds from your choice of savings will be given as installments, or the whole amount depends on the agreement.

Even with competing priorities for savings such as college education for your children, you need to ensure that you have enough money for your retirement. With little savings for your retirement, you may be forced to move in with your children or relatives which may not be ideal.

College savings

It is important to have the cost of college education of your child covered at the start of freshman. Higher education for your child may come in conflict with your retirement saving, but starting the saving for the college fee as early as at birth help you avoid this conflict. The money can be saved on a compounding or simple interest rate. The other way of ensuring you have the college fee is by taking education cover for your child in advance so that by the time he/she gets to college, you have enough money to cover college education.

In a case where the savings are not enough, other ways to raise money for college are:

Scholarships: some institutions offer academic and sports scholarships. Every year thousands of dollars are given either as a partial scholarship or a full scholarship. Given that your child meets the qualification based on either special skills, academics or sport getting such funding is secure.

Grants: American colleges such as Yale and Duke offer a grant to a student who has shown economic need.

Student earnings: the student can help finance his education by working during the summer or within the school for part time job. This money can help take care of other non-tuition needs.

Loans: there are education loans offered to students at lower interest. The student can take advantage of this to finance their studies.

Family gifts is another likely source to fund your studies. Through the help of your older siblings and members of the extended family, you can raise money to take care of part if not the whole college fee.