The American family with a child born today can expect to spend about $233,610 to raise that child to the age of 18. You can expect your little one’s college education to cost as much as $198,000.1,2 Before you throw your hands up in the air and send junior out looking for a job, consider a few strategies to help you prepare for the cost of higher education.
First, don’t panic.
Every parent knows the feeling – one minute you’re holding a little miracle in your arms, the next you’re trying to figure out how to pay for braces, piano lessons, and summer camp. You may feel like saving for college is a pipe dream. But remember, many people get some sort of help in the form of financial aid and scholarships. Although it’s difficult to forecast how much help you may get in aid and scholarships, they can provide a valuable supplement to what you have already saved.
Second, take advantage of time.
Compound interest is a big advantage when you’re saving for a long-term goal. Compound interest means that you are making interest on interest. In other words, growing your money on the growth of your money. Let’s look at an example: if you put $100 a month toward your child’s college education, after 17 years’ time, you would have saved $20,400 at 0% interest. But that same $100 a month would be worth over $32,000 if it had generated a hypothetical 5% annual rate of return over the same time period. The simple fact is that the earlier you start, the more time you give your money to grow.
Finally, take advantage of the programs designed to support saving for college.
There are a number of federal and state-sponsored, tax-advantaged college savings programs available. Some offer prepaid tuition plans and others offer tax-deferred savings. Many such plans are state sponsored, so the details will vary from one state to the next. A number of private colleges and universities now also offer prepaid tuition plans for their institutions. It pays to do your homework to find the vehicle that may work best for you.
We offer two additional tips.
Tip one: there’s an old saying, “The way to eat an elephant is one bite at a time.” That’s true for financial goals. Start saving now, even if it isn’t very much. Every dollar counts. Tip two: save smart. There isn’t a one-size-fits-all solution to saving for college. The particulars of your individual situation, goals, and beliefs are tremendously important. Have a plan that meets your needs and uses the right tools to do so.
As a parent, you teach your children to dream big and believe in their ability to overcome any obstacle. By investing wisely, you can help tackle the financial obstacles of higher education for them – and smooth the way for them to pursue their dreams.
Andrea L. Blackwelder, CFP®, ChFC and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with the Denver Financial Advisors at Wisdom Wealth Strategies.
1 – thestreet.com/personal-finance/cost-to-raise-child-14814957 [12/19/18]
2 – savingforcollege.com/article/how-much-to-save-for-college [7/12/18]
“Wisdom Wealth Strategies, LLC is a registered investment advisor offering advisory services in the states of Colorado and California, and in other jurisdictions where exempted.” This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates.