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Saving for college- How much is enough?

College Planning

How much to save for college?

This is common question for most parents as they begin to think towards the future. Yes, college is expensive. Hold on, let's be honest: College is very expensive. Of course the more you save, the less you need to potentially borrow. But, just how much should you target for this financial goal?

  • Start by talking small steps- If you set your goal to save 100% of your children's, you may get sticker shock and become discouraged and fail to save and plan at all.  You don't have to save the full cost as other options are available to your children. If you take a step back and think in terms of monthly savings, you can find that a reasonable amount of $25-$50 per monthly is possible if you start saving when your child is very young.   College Savings Quick Quote
  • The 1/3 Rule- We find that many families plan to save about a third of future college costs for each child. On average, however, several families save only 10% of college costs by the time the child turns age 18, falling short of the goal.
  • The 3X Rule- Historical college costs data reflects that the cost of a college education roughly triples over any 17-year period from birth to college enrollment. That's equivalent to average inflation rate of 6%. Which means that saving the funds alone won't get you there; clients must invest to some degree in the markets to offset this inflation factor. 
  • Start saving what you can- Financial planners can help you navigate the options: 529 plans, Roth IRAs, savings bonds, home-equity options, and other investing account options that can be coordinated depending on your personal family situation and circumstances. It's also important to be aware of how these account types and the order of distributions of these account types will affect the application of financial aid to your student. 
  • Bench marking progress in saving for college- It's never too late (or early) to start planning and savings for your child's college, since every dollar you save is dollar less that may have to be borrowed.  If you start saving a small sum early you can allow for the earnings to make impact and reduce your savings rate over time.  Its' wise to review your plan at least annually and track your account value against the benchmark based on risk tolerance (rate or return needed) combined with the amount being saved to keep you on track to make your goal.

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