How Much Do You Need to Save for College?
Saving for college is not as easy as it sounds. Being able to set money aside for your kids to attend school isn’t as simple as setting up a savings account and putting any extra cash left over at the end of the month into it. You can’t use a piggy bank mentality to pay for it. COVID-19 (coronavirus) disrupted the entire world economy, not just here in the United States. Any disruption or change can have a big effect on your financial plans. It makes it difficult to predict the future and that can have disastrous consequences.
Prices go up, that is a certainty. But to work out exactly how much they increase can be a guessing game, especially when large-scale shifts occur in the economic landscape. Making sure that there is enough set aside to pay for tuition and any other costs associated with college takes meticulous planning. College Board data shows us that from 1976 to 2018 college costs shot up about 6.0 percent. Compare that to the Consumer Price Index which measures consumer inflation and we see that CPI over the same time-averaged only 3.7 percent. This means that college costs are rising faster than inflation.
Scott Mass, Senior Vice President of David Lerner Associates says, “An important aspect of financial planning for college is making sure that you have your goals set accurately. Talking to a professional and figuring out your personal roadmap is the first step to college saving. Income-oriented strategies and budgeting are the foundation of saving for college. Risky investments are not a good idea, you need to have a safe middle ground of investing that over time helps you reach your financial goals.”
You will need to spend around $60,000 annually to attend a respected private college in the United States today. However, college costs will keep rising, so you can’t budget for 60k when it comes time for your kids to go to college. Saving 60 grand will be a great start, but it won't get your kid to the college you were originally budgeting for and that could mean loans and debt or just disappointed faces.
Analysts have worked out that if the current trend continues at the same pace of inflation, the college will cost more than $100,000 per year by 2030. To save that much a parent of a 3-year-old in 2021 will need to save $1300 a month until they are 18.
Get professional advice and work out a plan to save what you will actually need when the time comes. College saving is not the same for everyone. Be sure to add the cost of inflation so you don’t have any surprises down the line.
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