Whenever saving for any goals, including college savings for your children, first look at your short and long-term goals. In doing so, consider how they overlap and impact one another. Ensure that your goals reflect your values and the life you want. Having a clearer picture lets you determine how to balance your varying goals and increase your success.
When balancing your goals, such as paying for college and funding your retirement, you must prioritize your financial future. As a parent of two college-aged children, I realize it is challenging to consider your needs above your children’s. But, while there are many ways to pay for college and alternatives to college, there are no loans for retirement.
Circling back to your values and the life you want to live is helpful.
For example, if you prioritize education and travel now but will travel less in retirement, adjust your future travel expenses.
Although your parental instinct may be to put your children’s education first, putting yourself first alleviates you and your children of financial stress and challenges now and in the future.
How Much College Savings Is Enough?
When deciding how much to set aside to save for college, see how much money is available each month after funding other goals that take priority.
Consider the ideal dollar amount you want to set aside for college savings, but always prioritize not derailing their finances.
Once you determine what, if any, amount you can afford to set aside for college savings, it becomes a monthly expense and part of your expense plan.
Where & How Much To Save For College Savings
You can afford to fund your child’s college, now what? How to best fund future college expenses, depends upon your risk tolerance, time horizon, and potential impact on financial aid.
If your student may qualify for financial assistance, it is vital to research the latest changes regularly.
You can consider state-specific 529s that may offer a tax advantage for a specific sum. The state tax-advantaged accounts enable you to have a triple tax advantage if investing and using it for qualified expenses.
529s also have provisions allowing you to pay for other career pursuits and, in some states, some K-12 costs. If your time horizon is short and risk tolerance is low, compare the 529 money market to high-yield savings returns.
Suppose you are concerned about the penalty for not using the money. In that case, it is transferrable to another beneficiary. Also, the recently enacted Secure Act 2.0 will allow up to $35,000 held for at least fifteen to transfer to a ROTH for a beneficiary.
Student Loans and Potentially Burdensome Debt
Ideally, when considering college savings, you have enough money and will not derail your finances and do so without loans.
Either way, consider doing a return on investment analysis when investing your money in anything, including paying for college. Analyze what will be your return on investment on the amount of money spent to fund college.
Enabling you and your child to have. a mindful conversation about the following is lifechanging:
- Each college under consideration, as well as its benefits, pros, and cons.
- The cost
- Their major
- How much will they likely earn upon graduation?
- How long would it take to pay off any potential debt?
Advice And A Plan
Rather than leave your future or that of your child up to chance invest in partnering with a financial expert. While I consider your emotions, as a fiduciary financial advisor, I ensure emotions do not interfere with your advice. I prioritize you. Let’s partner to understand how your goals impact one another, and what is best for you, avoiding destructive generational financial stress.
