Funding a College Education is as Easy as 1-2-3
I'm sure
some of your restless nights were spent worrying about how to fund your children's college education. Today it seems like having an undergraduate degree is a prerequisite to just getting a job. So to ensure
that your children get the best start in life, you guide them toward college. But gone are the days where a good summer job and some cash from Mom and Dad would put you through college. Over the past ten
years, the costs of college educations have grown at a rate of 8% a year. At the current rate, an undergraduate degree in the year 2015 will cost around $300,000 at a private university and $150,000 at a public
university. Just thinking about it makes me dizzy. But with careful planning, funding a college education can be a manageable goal and as simple as one, two, three. Step One. Start as early as possible. I know that is easier said than done with the strains of paying
off debt (may be even the remnants of your own college education) and saving for retirement. However, the longer time horizon allows you the luxury of using more aggressive college-saving investment vehicles and
puts the power of compounding returns to work for you. Additionally, the longer timeframe reduces the amount of money you need to set aside monthly to reach your goal. Step Two. Determine how much
you will need to save. Identify what type of school you expect your child to attend. Will it be a private university or a public university? Will it be in your resident state or out of state?
After you have identified some prospective schools, give the university admissions office a call and ask them if they can supply you with the projected tuition, room and board and other college costs, such as books, for
the particular years your child will attend school. Another option is to take the current cost today and assume an 8% annual increase. Although you will not have the exact amount, you will have a good idea
of how much money you will need to save. Step Three. Develop a saving program. Now that you have quantified your financial goal, identify the amount of money you currently have available to fund
that goal along with the time horizon (number of years before your child attends college). All these factors will be used to determine the appropriate investment vehicle. Ask your financial advisor to select
the best investment program for you. The simplest strategy for funding a college education is to purchase one or more specific bonds. Bonds are good because they generate compounded interest over the years
and can be timed to mature when your child is ready to attend school. Stocks, although riskier than bonds, may be a good choice if you have a longer time horizon because stocks, over the past several years, have
been found to generate higher returns than bonds, CD's and money-market mutual funds. However, remember that as your investment horizon shortens, you may become less tolerant of the stock value fluctuations and
risks. The most important thing to remember is that no matter what you can or can't do, your children will always be grateful and love you unconditionally for doing your best. |
