How much should I save for college? The answer will shock you!
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It will be 10 Years this May since I graduated college. Looking back on my college years, I realize that there were many things that I could have done sooner to set myself up for success financially in my 20s. Saving for college can be a daunting task, whether you are a parent or if you’re a student who pays your own way. Calculating how much money to set aside for college is difficult with tuition costs rising. Here are some ways to determine your “number.”
1. Understanding the Real Cost of College
When parents are deciding how much money to save for school, they tend to underestimate the true cost. Average annual costs for a four-year university include tuition, room and board. Private colleges are more than twice as expensive. The projected annual rise of 5% will make today’s cost look small compared to the costs parents will have to pay for their children in the future. Savings of $100,000 to $300,000.00 per child could be achieved by planning for a 4-year degree. The 1/3 Rule: A Practical Savings Strategy01001002. The 1/3 Rule – A Practical Savings Strategy
The 1/3 Rule is a popular guideline that parents use when deciding how much money to save for their child’s college education. The 1/3 Rule suggests that parents save one-third of the expected college costs, cover one-third from their current income, while they are in school, and finance the remaining one-third through loans or financial aid. This means that a child attending a public college would need to save between $35,000 and $50,000 over the course of 18 years. If you begin early, saving $250 per month is possible. 529 Plans are the best tool you’re not using enough
When it comes to deciding how much money to save for college, 529 plans can make a huge difference. These tax-advantaged accounts let you grow your money tax-free when used to pay for qualified education costs. Most states provide additional tax benefits that make them an easy choice for families. Even $100 per month, starting at birth, can amount to more than $40,000 in college assuming a return of 6%. Fewer than 40% of families take advantage of 529 plans despite their benefits. The shocking reality of financial aid
Many families assume that financial aid will cover the majority of costs, but this is not always the case. Most financial aid packages include loans that can burden students with debts for years. The amount of money that grants and scholarships cover is usually a small fraction of the tuition. Eligibility depends on income and assets. This can result in middle-class families receiving very little grant money despite their high tuition costs. Start Early and Save Smartly
