How to Save for Your Child’s College Education: A Comprehensive Guide

When it comes to saving for your child’s college education, there are no one-size-fits-all solutions. The amount you should save depends on your budget, how much of your child’s expenses you want to cover, and where you anticipate they’ll attend school. Here at O1ne Mortgage, we understand the importance of planning for your child’s future, and we’re here to help you navigate this complex process. Call us at 213-732-3074 for any mortgage service needs.

Determine Your Ability to Contribute

Before you open an educational savings plan, it’s crucial to figure out how much you can reasonably contribute each month. Here are some steps to help you make this decision:

1. Take Care of Your Financial Plan First

While it’s a noble goal to help your child financially, it’s essential to ensure your own financial security first. Think of it like an airplane safety demonstration: you need to secure your own oxygen mask before assisting others. Make sure you have a good start on your emergency fund and are on track with your retirement savings. This will protect your child’s interests now and ensure you don’t burden them in the future.

You don’t need to have every aspect of your financial plan completely secure before you start saving for college. However, if your other financial goals still need work, consider starting with a lower college savings contribution and increasing it later.

2. Review Your Budget

If you haven’t already made a budget, review your income and expenses over the past few months. Categorize each expense to understand where your money is going. Then, determine how much you can afford to set aside each month for education savings, taking other important financial goals into account. Over time, track your expenses and adjust your budget to increase your savings.

Remember, 529 plans and other educational savings accounts may not allow you to withdraw money for non-educational expenses without incurring a penalty. Avoid setting aside money that you might need access to later.

3. Set a Limit

Determine your limit for how much you want to save. Here are some potential scenarios:

• Pay for all four years at a state university.
• Pay for all four years at a specific college or university.
• Cover a portion of the costs and have your child make up the rest with scholarships and other financial aid.
• Pay only for tuition and expenses.
• Cover all expenses not related to tuition and fees.

As you consider these options, make sure you’re aligning your goal with your budget.

Aim for at Least One-Third of the Total Cost

Some college experts recommend that families aim to cover about one-third of the average cost of tuition using their college savings. In theory, you could then cover the remaining costs using current income—assuming you’ll be making more money in the future—and financial aid in the form of scholarships, grants, student loans, and more.

Keep in mind that the cost of college keeps rising. If you’re using current tuition figures, you may need to use an online college savings calculator to estimate what tuition might look like by the time your child graduates from high school. Additionally, because you can invest college savings in a 529 plan, you can factor in average annual returns based on your portfolio’s makeup.

Help Your Child Set Realistic Goals

As your child gets older, start a conversation about where they want to attend school and how much it will cost. Discuss alternatives and the importance of applying to multiple schools to compare financial aid packages.

For each school they’re considering, talk about the potential advantages and disadvantages. For example, they may want to attend a more expensive university to take advantage of better resources and more prestigious programs, but they may need to cover a more significant portion of the costs with a part-time job or student loans.

On the flip side, if they opt for a less expensive school, they may be able to graduate with little to no debt, but they may not get the experience they want. Empower your child to make the best decision for them based on all the available information.

The Bottom Line

Deciding how much to save for college can be challenging, especially if your children are still very young. You can make assumptions about the future, such as how much tuition will cost, whether your child will get scholarships, which school they’ll attend, and more, but a lot of it is guesswork.

However, walking through these steps can make it easier to gauge your ability to save for college and determine the right amount to set aside each month. Take your time to consider all the important factors in the decision-making process, and don’t be afraid to make adjustments to your savings plan along the way.

At O1ne Mortgage, we’re here to help you with all your mortgage service needs. Call us at 213-732-3074 to speak with one of our experts today!