College Planning: Simpler Than You Think!

I have three beautiful girls that all will attend college when they graduate high school (yes college is mandatory). I deeply believe that you will always earn a salary that is derivative of the difficulty of replacing your skillset. If you are a full-time laborer (which is a job I’ve done as a teen) you can be replaced with anyone with two hands. College is totally underutilized in our culture. I plan to make the most of my children’s potential by allowing them to improve themselves with academic investment. It’s not a guarantee that they will earn 50-120k salaries, but they sure aren’t going to stumble into those careers either.

In order to save for college, you need three basic questions answered.

  1. What will the cost of the college tuition be when your child attends? Be sure to factor in a 5% tuition inflationary rate (average increase over last 10 )
  2. How much will you need to invest to meet your tuition requirement?
  3. When will you start your plan?

When you answer the questions above the key piece of data will be how many years do you have for your accounts to compound. We know the maximum will probably be 18 years if you start the year when your child is born. Many of us are lucky if we planned things so well. If you are like me you have a tween or teenager that is 2-8 years from attending and you haven’t even started college savings yet. There are different strategies you can use to ensure you’re not blindsided and cash flowing college unexpectedly.

Start a 529 plan when your child is very young, and you will be good to go for a fully funded college fund that doesn’t absorb your cash flow. Use proper planning and study up on ongoing trends.

Did you know that sending your kid out of state is 2.5 times more expensive?

Did you know that the average yearly cost of tuition is $9,000? With room and board, it is closer to $20,000. That’s a whopping $80,000 in tuition and board for a 4-year in-state education today. Likely to be around $180,000 in 18 years (assuming the current 5% tuition inflation rate.)

How are you going to afford it? The answer is simple… open a 529 plan and use a calculator like this one College Cost Calculator to figure how much you will need. Here are some recommended saving strategies:

Gold: $400 per month for 15 years = $167,000 (you only put in $74,000!, the rest is tax free growth)

Silver: $200 per month for 18 years = $120,000

Bronze: $5,000 deposit then 100 per month for 18 years = $90,000

*assuming a 10% annualized rate of return

So there you have it, college is expensive! If you did the “gold plan” you would be allowing the government and interest to pay for half of the bill! Additionally, that same plan gives you 5 years to get your disposable income in order. We should not invest in more shiny car payments, cell phone plans, and over priced cable bills than our children’s academic futures.

The longer you ignore the costs, the more you will have to pay monthly to make up for it. The magic of compound interest will save you thousands over the life of the investment if you start early.

If you don’t know anything about 529’s check out this page Best 529 Plans 2015. Maryland is listed as a gold standard provider of its 529 plan!

For those who are Maryland residents, you can download the enrollment kit here Maryland 529 Plan *never do prepaid tuition options.

*Disclaimer: This blog is not meant to give financial planning advice, it is simply giving an opinion based on logical data that can be retrieved from sources quoted in this article. There is no affiliation between this blog and any other site. Financial advice should be sought from a certified financial planner and financial decisions should be made per the readers own research and analysis. Investing involves risk and it is advised that no one invests without understanding fully the products that they are purchasing.

Leave a Reply

Your email address will not be published. Required fields are marked *