Almost every parent I interview—whether they’re five months pregnant or have a fifth-grader at home— says college is their biggest financial planning worry. And for good reason: in 18 years, you’re looking at over $200,000 to send your kid to a state school and over $400,000 for most private four-year universities. Where ever your child ends up going, that’s a big nut to swallow.
So what is the best way to get a jumpstart on saving for college so that you can really enjoy the time with your young family now, without dreading that huge tuition bill looming on the horizon? I tell parents it all comes down to two words. Spend less.
That’s right: the best way to save for your family’s future is to build a sustainable household budget today. I encourage parents to follow three steps before they even think about stashing money away in any kind of college savings plan.
Step One: Shed credit card debt
You’ve heard it a thousand times: carrying large balances with double-digit interest rates is financial suicide. But anyone with kids knows unexpected costs creep up when you’re not looking (they’re always outgrowing their shoes, their winter coats; losing their hockey sticks or tubas!). Invariably, some of these purchases go straight on the plastic.
Here’s my suggestion: kids outgrow their shoes or coat, but we don’t. Try keeping every possible adult expense off of your credit cards. Instead, add a little something extra, $50 or $100 a month to pay down the balance. It may not seem significant now, but a difference of $200 a month (that added payment and the foregone adult charges) adds up to thousands on saved interest payments in the future—money you’ll be able put in a child’s tax-deferred college savings fund after your cards are paid off. Whatever you do, take care of double-digit debt before getting single-digit returns on your college savings.
Step Two: Live smaller
So many of us find ourselves suffering lifestyle inflation. The more we make or the more our family grows—the more space and stuff we think we need. But the best way to save for college is to keep your costs down before that admissions letter arrives. Way before, like, as soon as you possibly can.
Try to drop the word upgrade from your family’s vocabulary. You don’t need a better car when you have a new baby (as long as yours is safe of course); a remodeled living room (or any other room) to entertain; or that brand new flat screen you’ve had your eye on—even if you can technically afford it.
Learn to simplify your home life by spending less energy on consumption and more time on family activities that don’t involve shopping. Make it the family philosophy, from the top down, to spend less brainpower on buying things: wear the same dress to a family wedding, even if all your relatives have seen it already (after all, nobody is looking at you anyway). You’ll be surprised how much it all adds up to after a few months, and how much happier you’ll be with that added financial cushion.
Step Three: Have The Right Amount In Your Emergency Fund
According to a survey by the National Foundation for Credit Counseling, sixty-four percent of Americans don’t have enough cash saved to comfortably handle a $1000 emergency expense. And so many of the parents I’ve talked to say they barely have one or two months’ worth tucked away in case of a rainy day.
Guess where those emergency expenses wind up going? Yep. On the cards, and we’re back to step one.
First things first: take a good, hard look at where your money really goes each month. Print out last year’s bank and credit card statements and sit down with your partner. After you both have a realistic picture of what it takes to maintain your family’s lifestyle, make sure you have at least a six-month “do-not-touch” reserve in a savings or money market account. Remember: the best thing you can do to save for college is live responsibly today.
For more information about the best college savings plans, stay tuned for Jacoba Urist’s second part on planning for your child’s education.