Financial Rules Of Thumb: Saving For College

Have you ever heard the rule of thumb that says you should wait 30 minutes to swim after eating? Or don’t leave your Christmas lights up past Martin Luther King, Jr. Day? Perhaps you’ve read some of the arguments both for and against the edict to drink 8 glasses of water per day. And of course, there’s the rule that gets a lot of kids in trouble: question authority. But while these rules may not always ring true, generally speaking, they are good guidelines for getting you through life a little easier.

The same goes for finances. Continuing my financial rules of thumb series, this week let’s answer the question, how much do I need to be saving for my kids’ college? Besides “as much as you can,” there are actually decent rules of thumb to guide this goal, depending on what kind of school you want to send your child to. Here are the numbers I use:

If your plan is to keep your kids closer to home at a public, in-state university, aim to save $1,000 each year for 18 years, or roughly $83 per month per kid. That’s actually pretty doable if you start right away! For a semi-private or out-of-state university, shoot for $3,000 per year, assuming about $15,000/year in tuition. However, if you have dreams of Harvard, Yale or any other elite private school, plan to save $6,000+ per year for all 18 years. If you want to have a more specific number, check out the calculators at SavingforCollege.com.

What happens though if you can’t afford to save that much? Well, here are some other things to consider:

Don’t sacrifice retirement for college. As our CEO likes to say, there are no scholarships or loans for retirement. Make sure you are at least obtaining your employer match in your 401(k) during those lean years when your kids are actually in college and prioritize staying on track for retirement during the saving years leading up.

Use the rule of thirds. If you can’t (or don’t want to) fund all of your kids’ expenses, try the rule of thirds: aim to pay for one third with savings, one third with student loans or scholarships and one third from current earnings by cutting back on wants during those years.

Keep some skin in the game for your kids. A lot of my friends are only aiming to pay for half of their kids’ schooling simply because they want their kids to have financial motivation to do well and graduate on time. Nobody wants to fund a Van Wilder so the hope is that if your kid has to pay for part of his/her expenses, he/she will be more likely to actually go to class.

There are lots of different philosophies out there about where to save, how to save and how much, but these are the general guidelines if you’re just not sure where to start. At the end of the day though, remember that while you obviously want the best for your kids’ future, sacrificing your own long term financial security to send them to the school of your dreams is an investment that may not pay off. I encourage you to take my colleague Tania’s challenge and “Just say no!

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