While there’s no concrete answer or definitive number on how much you should be stashing away for your children’s college fund, there are some guidelines that can help keep you on track. Keep in mind that the price of tuition, room and board, and fees are always in flux, and you may need to adjust accordingly as these costs continue to rise. There is also a significant cost difference between public and private schools. According to College Board, the current cost of a four-year in-state public university is estimated to be $20,770 per year versus an annual cost of $46,950 for a four-year private college.
Part of the problem is that the cost of college is growing substantially. By the time this year’s newborns get to college, the cost of four years at a public university is likely to be about $200,000. The other problem is that parents simply don’t know what they should be saving.
- The $2K rule: A good rule of thumb is to stash away $2,200 per year per child. This amount should cover about half of the cost of a four-year public institution at today’s tuition rates. If you haven’t started yet, and your child is 5 years old, you’ll need to play catch up and add $11,000 to your college fund. ($2,2000 x 5 years = $11,000)
- The rule of thirds: Try to save up one-third of your kids’ expected college costs. To do that for an infant born this year, you’d need to save about $150 a month for a public college, and $220 a month for a private college. The idea is to spread the cost of college across three different sources. One third comes from what you’ve saved, another one third comes from current income at the time tuition needs to be paid, which can also be in the form of grants and scholarships, and the final third from future income, as in student loans.
- Automate it: An easy way to make sure you keep your savings strategy on track is to automate it. Arrange either a direct deposit from your pay check directing into a college savings account or a regular monthly transfer from your checking or savings to your specified college savings account. The easier you make it to save, the less likely you may be tempted to skip contributing.
- Put in a little extra:Whether you skip a date night, or commit part of your tax return or bonus, there are creative ways to save a little more each month that can significantly impact the growth of your college savings account over time. Every little bit helps and adds up over time.
If you are unsure how much money you’ll need for college, whether you’re on track to save enough, and what you need to do to reach your goal – check out this College Savings Calculator.
If you need help setting up a designated college savings account or have questions on how to set up monthly deposits into your designated college savings account – give us a call or stop into any of our branches.
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