College is expensive. If you’re able to help your child by putting money aside in a 529 plan or similar, the sooner you can start saving the better. Of course, knowing exactly how much to put aside each month isn’t easy. This number can be different for everyone, so you can’t necessarily go with the amount your friends or other family members are saving for their children.
“Figuring out how much to save for college is really tricky but answering a few simple questions can help break through the clutter,” said Jeremy Zuke, financial planner at Abundo Wealth.
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First, he said you’ll need to figure out how much money you’re willing to contribute. “Let’s say you’re willing to fund 80% of a public in-state school to make sure your student has some skin in the game,” he said. “An average year costs about $25,000 including tuition, books and room board.”
At that rate, he said you’ll need to come up with about $20,000 per year, which equates to a total of $80,000 over a four-year period. “But of course there is inflation to consider,” he said.
Doing the math, he said in 18 years, $80,000 at 3% inflation is approximately $135,000 by the time a newborn starts college. “If you earn 7% per year on the investments — a reasonable guess for a balanced 529 portfolio — you need to save either $40,000 in one lump sum today or more realistically, about $3,500 per year for 18 years.”
Of course, the money you save for college tuition won’t necessarily be the only funds your child has to rely on. “As your child gets older, you will also have a better sense of potential financial aid, scholarships and other sources of funding — maybe grandma wants to help,” he said. “All of those can serve to reduce the amount you need to contribute, but it’s best not to count on that too early.”
Here’s Exactly How Much You’d Need To Save Monthly
As noted above, there are many different variables involved with saving for your child’s college education. Some of these include the age at which you start saving, tuition and fees at the school your child attends, the number of years they’ll attend school, the rate of return on your investment and the percentage of total costs you’re planning to cover.
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To give you an estimate, here’s how much you’ll need to save each month to cover tuition and fees and room and board for a few different scenarios, assuming a 7% return on investment per year and a 3% inflation rate, according to the Vanguard College Savings Planner.
- Example one: If your child is currently an infant and will be attending a four-year, public, in-state school at age 18, you’ll need to save $334 per month.
- Example two: If your child is 10 years old and will be attending a four-year, public, in-state school at age 18, you’ll need to save $977 per month.
- Example three: If your child is a newborn and will be attending a public, four-year, out-of-state school at age 18, you’ll need to save $591 per month.
- Example four: If your child is five years old and will be attending a public, four-year, out-of-state school at age 18, you’ll need to save $810 per month.
- Example five: If your child is a newborn and will be attending a private, four-year, expensive school at age 18, you’ll need to save $948 per month.
These numbers might feel overwhelming, but remember, they’re just estimates. This also assumes that you’ll be covering the full cost of your child’s tuition and fees and room and board, which is great if you can afford it, but not a parenting requisite.
Ultimately, anything you’re able to save will be helpful. Do your best and feel proud that you’re able to put any money aside to give your child a head start on their college education costs.
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This article originally appeared on GOBankingRates.com: How Much Should Parents Save Monthly for Their Child’s College Costs?
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