We’ve seen a dramatic increase in the cost of attending college in recent years. Even the relatively affordable state colleges are not great deals anymore due to rising costs of tuition and room and board. I remember that when I was an undergraduate student at UCLA in the ’90s the annual tuition was under $4000 – and now it’s over $4000 for just one quarter. I was lucky enough to graduate from UCLA without any student loan debt because I received scholarships and worked two jobs to pay for my room and board. Unfortunately, I can’t say the same for the $300,000 price tag of my graduate and post-graduate education!
As a parent of two young children, I get anxious just thinking about how much college will cost 15 years from now. Using the college cost calculator, I estimate that we will need almost $1 million dollars for two kids to attend college for four years, assuming that tuition and room and board cost $50,000 per year in today’s dollars. Although $50,000 sounds like a lot of money, it is a conservative estimate, as private schools charge upwards of $45,000 per year for just tuition alone. Yikes!
We decided to start saving for college for our children a couple of years ago. After doing some research and talking to other parents, we decided to open a 529 College Savings Plan for each of them. We chose the Utah 529 Educational Savings Plan due to the low administrative costs involved. It’s easy to set up on the website, but make sure you have your child’s social security number and your banking information handy before you get started. You will also have to choose the type of investment strategy you want for the money in the plan. The investment strategy you choose determines the asset allocation of the funds in the account. These decisions are based on your investment goals and how much time you have to save before your child enters college.
We chose the age-based moderate investment plan, which starts off with a higher percentage of aggressive investments (higher risks but potentially higher yield). As your child gets closer to college-age, the percentage of conservative investments increases (lower risk but lower yield). Our plan has experienced over 10% return in the last year, which we are extremely pleased with. If we had chosen the more aggressive plan, the return would have been closer to 15%. Keep in mind that if the market drops, you can end up with less money than you had originally invested (there is a risk of losing money). Because we are investing for the long run, the ups and downs of the market are smoothed out over time so I don’t worry too much about the short-term fluctuations. It is prudent though, to review the quarterly performance report and keep tabs on the investments in case any changes need to be made.
After making your initial deposit to set up the account, I would recommend setting up an automatic monthly withdrawal from your checking account to fund the plan. This is really easy to set up and makes the process of saving for college convenient and automatic. When the money gets automatically sucked out of your checking account each month, you won’t even have to think about it!
One time contributions, say for birthdays and holidays, are also easy to make through the gift program. Grandparents, relatives, and friends can give the gift of education instead of clothes or toys that children may not necessarily need. We are very fortunate that our children’s grandparents have generously contributed to their college savings plans. I also make it a habit to put whatever cash gifts they receive into their college savings accounts.
However small the amount of your initial investment, it feels good to know that you are taking steps toward something important for your child’s future. When I was thirteen, my mom helped me to invest $25 per month from my piano teaching to an investment account. Even though $25 was a small monthly contribution, over many years it added up to a significant amount when I needed the money to help pay for graduate school.
Do you have a college savings plan? Any words of advice? Please note that I am not an investment advisor so please read the program description carefully before you invest.
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