Step 1: Run Some Educational Analysis
A CERTIFIED FINANCIAL PLANNER™ can provide analysis of how much you’ll need saved by projecting the costs of a college education. For the 2012 – 2013 school year, SavingforCollege.com reported the national average annual cost of an in-state public university is $37,800 and $127,100 for a private college. Factors such as your willingness to pay and what percentage you’d like to pay, the type of institution, assumptions on investment returns and the inflation rate for college tuition will be considered. Once you’ve run an educational analysis, make sure you review it regularly – we recommend once a year – to update the variable assumptions as well as accounts for the saving you’ve been doing.
Step 2: Start Saving
When you see the educational saving analysis, you may be floored by the amount of money it takes to save for college. There’s no better time to get started with your saving than the present. Consider a 529 plan or other education savings vehicle and start to make contributions. Make sure they fit in with your overall financial plan. You don’t want to overcompensate on one component like education savings at the expense of other important pillars of financial independence such as retirement security.
Step 3: Get Your Team Involved
You may get an extra boost if your family or friends are looking for ways to help your children prepare for your future. If you receive monetary gifts each year or on special occasions, consider suggesting that these gifts go toward funding of education savings accounts such as 529’s. Every little bit helps and can become a wonderful legacy from the family.
Step 4: Rinse and Repeat
The most important part of a plan is sticking with it. Set your investment mix with the help of your financial planner and review regularly – you can change the investment mix for a 529 plan once a year. As your child gets closer to college, it is often appropriate to make the investments more conservative as there is less time to “make up” for market fluctuations and your time-frame for use is shorter. Make sure that you continue to contribute until your funding game plan is fully allocated.
Step 5: Get Your Child Involved
College expenses are often the first adult financial lesson for a young person. Make sure to involve your child in conversations about college expenses, the impact of decisions about different institutions on the finances, the work it took to develop an educational plan, and financial expectations for your student during college. This can lay the foundation for a prudent financial investor and planner in the next generation.
My last word of advice: Don’t put your head in the sand about the extraordinary opportunities and expenses that come with educational planning. If you’re feeling overwhelmed, a financial planner can help. Want to discuss further? E-mail me at Melissa.Joy@centerfinplan.com.
Melissa Joy, CFP®is Partner and Director of Investments at Center for Financial Planning, Inc. In 2011 and 2012, Melissa was honored by Financial Advisor magazine in the inaugural Research All Star List. In addition to her frequent contributions to Money Centered blogs, she writes frequent investment updates at The Center and is regularly quoted in national media publications including The Chicago Tribune, Investment News, and Morningstar Advisor.
Financial Advisor magazine's inaugural Research All Star List is based on job function of the person evaluated, fund selections and evaluation process used, study of rejected fund examples, and evaluation of challenges faced in the job and actions taken to overcome those challenges. Evaluations are independently conducted by Financial Advisor Magazine.
Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Investments mentioned may not be suitable for all investors. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision.