
Get an Early Start
By: Kate Hennessy, CFP®
This time of year, it’s hard not to think about college. From young adults packing up their cars to Saturday football games, college is in the air. In this month’s newsletter
- Save Early Because Costs are Rising –
Sadly, with the ever increasing cost to attend college, paying for college is a huge challenge for most families. However, if you startsaving as soon as your child is born , you can enjoy the benefit of compounding, aseven small contributionswill add upto big returns over time . In order to fund 100% of a 4-year private college, parents need to save $1,000/month in a 529 plan from the day their child is born. It is not necessary to save the entire amount in a 529 plan, in case the child goes to a state school or has large scholarships. If parents have the available cash, saving $600/month in a 529 plan is a good level to avoid over-funding, although parents will likely need to draw from accounts beyond the 529 plans to cover the full costs in the future. Put college investing on autopilot. Open a 529 Plan and make automatic contributions from your bank account or paycheck. Two-thirds of 529 plan users have their plans linked to their bank account or paycheck. The chart below shows the true benefit of compounding-
- Discuss the Cost of College with Your Child –
Begin to have a conversationabout the cost of college when your child is in junior high. It’s an appropriate time as they are starting to learn more about finances, and the connection between work, earnings, and expenses. In high school, your child may begin talking about colleges with their friends, and most high school students associate a college with a sports team, status, or a name.Students often have minimal knowledge or understandingof college costs or the expected return on investment. Consider starting salaries before choosing a major.D iscussions of college costs will be a series ofconversations over time, and students should walk away with a better appreciation of the investments their parents are making.
- Be Realistic About Free Scholarships and Financial Aid –
even as a parent whose children play sports year-round and assome one who has spent thousands of dollars on sports and activities, the likelihood of our child receiving an athletic scholarship to a Division II school is 1-2%. Most families don’t qualify for free grantsor