If you have children, or might one day have children, or might one day fall in love, get married and possibly have children –and if you’re not saving for college, well, you’re behind the eight ball. You’d better get moving.
When the rising cost of college comes up as a topic, these are the horror stories you hear. You also hear how starting early, and planning for decades in advance, is essential to paying for college when your child gets that all-important acceptance letter.
How do you save enough money to finance a college degree?
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Is it really that bad?
College costs are certainly going up faster than the average paycheck. The College Board says the average annual cost of a four-year public college is a bit more than $9,000 a year — a 17 percent increase since 2010. The average annual cost of a private four-year college is $31,000 a year. That number is also up, about 10 percent in the past five years.
The question is: How do you save enough money to finance a college degree?
The answer, according to Fidelity Investments’ Keith Bernhardt is to start now, wherever you are in your life. He told LifeZette the most important things to do are to give your funds as much time as possible to grow, and to contribute regularly.
If you’re living paycheck to paycheck, “a regular auto-transfer into an account dedicated to college savings eliminates the anxiety surrounding when you will be able to make your next contribution,” said Bernhardt. It also makes it less likely you’ll dip into the college fund as an easy fix.
But Bernhardt said it’s smart not to get hung up on a specific cost because colleges will cost what they cost. There’s nothing you can do to change that.
“Few families pay the full cost of college advertised,” Bernhardt said.
Make peace with the fact that you can’t pay for everything and go out and look for ways to close the gaps. Look for “grants, scholarships, work-study,” he said.
Parents Are Preparing — Especially the Young Ones
Research shows that parents, especially young parents, are committed to helping their kids get through school. A new report from Fidelity Investments, published last month, showed that 69 percent of parents are actively saving for their kids’ college years.
The real surprise of the study was that millennial parents are saving at a much higher rate than any other generation. Nearly half of all millennials, a higher percentage than any other generation, intend to bankroll their kid’s entire education. And another record 74 percent are on track to pay for at least three-quarters of the bill.
Why are millennials, often derided as the most entitled generation ever, saving so much? Most millennials, Bernhardt said, have lived under the cloud of the Great Recession most of their professional life. Many of them have taken what they learned from the down times, become solid savers, and are more likely to make protecting their money a “regular habit.”
Slave to the Market?
But why save money for college when you can lose it all in the next economic downturn? It’s all in the planning, Bernhardt said.
“It’s important to review your investments and consider shifting to a less aggressive mix than one that perhaps seemed reasonable 10 years before college,” he said.
It’s all about avoiding market volatility. Go aggressive if you have the time, and then slow down as college gets closer. Stay engaged in the process. If you’re too aggressive, you can lose a lot of money. If you’re too conservative, it “may not give you the opportunity to keep pace with tuition inflation,” Bernhardt said.
Also, consider age-based college investment programs like a 529 plan. These are special savings plans offered by states, state agencies, or educational institutions that help pay for tuition, books and other college-related expenses. Many investment companies have an age-based investment 529 college savings plan that helps protect your money by moving it into more conservative investments as you get closer to college, which minimizes your risk. They do the work for you.
You can’t control the ups and downs of the market, so control what you can. If you have a child, start saving now, and contribute regularly.
Remember that even if you can’t pay for everything, something is better than nothing. Every dollar you put towards your kids’ college is one less dollar they (or you) have to borrow. They’ll appreciate it.