When you have children, saving for their college education is generally going to be a major priority. You want to help set them up for their future and provide them with the financial resources they need to get a quality secondary education.
Everyone wants to save for their children’s college expenses, but it’s often easier said than done. Is it best to invest the money for larger potential gains by the time they are ready for college? Should you simply put money away in a separate savings account? What about a 529 plan? These are all important collect savings questions we plan to explore in the coming Illumination Wealth Blog articles.
Today, we want to talk about prioritizing your college savings in relation to your overall financial plan. We see many people making mistakes, whether it’s not saving enough or putting college savings ahead of other financial needs that may be more important in the long run.
Experts project that roughly 18 years from now (when a newborn of today will be ready for college), the average four-year university tuition costs will range anywhere from $250,000 (public school) to $500,000 (private school). Needless to say, college is not cheap. Many parents aren’t quite prepared for just how expensive it is. They put away whatever extra money they can, but then realize they are far short of the actual expenses when the time comes. For example, let’s say you put $100 a month into a college savings account. Over 18 years, that only adds up to $21,600, not counting any interest or investment earnings.
The simple fact is you may have to get more creative or aggressive with your college savings plan to really save up as much as your children will need. You should consult with your financial advisor and get a solid plan in place as soon as possible.
Another big question to ask is where you should prioritize your college savings plan compared to other investments and financial plans. Too many people make college savings their number one priority, which is understandable. You are investing in your children’s future and you want to give them all the support you can. Often, this comes at the sacrifice of your own retirement savings.
Some people find themselves with the kids comfortable in college while they struggle later in retirement because they didn’t save enough for their own living expenses. It is important to remember that college can be financed. Retirement cannot. You don’t want to be taking out second mortgages or reverse mortgages to just pay your bills. Student loans are not ideal either. We all know that, but there will more time and opportunity for those to get paid off.
The point is, you may want to prioritize retirement savings and other investments over college savings. Or, at least you should have a healthy balance of priorities so that all needs are being taken care of by your long-term financial plan. The stronger your overall financial health, the more you will be able to help your kids through college and the early years of their adult lives. You can use some of your retirement savings for college expenses, as well. If you sacrifice your own financial well being to focus solely on college savings, you may find yourself (and your kids) in a tougher situation.
For help with your financial plan, including retirement savings, college savings and other investment strategies, contact Illumination Wealth today. Let us help you build a stronger financial plan.