I just ran across an article by Suze Orman on saving for your kids’ college education. Pretty run of the mill stuff, but good advice just the same. The take home lesson is that you need to prioritize your investment needs, and that you shouldn’t rank saving for college ahead of some other critical areas.
According to Orman:
“You need to listen up here: You must take care of your other financial needs before you save one penny for your kidsâ€™ college educations. That means getting rid of your high-rate credit card debt, contributing enough to your 401(k) to get the maximum company match, saving up for a home if you donâ€™t yet own one, funding a Roth every year if you meet the income eligibility requirement (under $95, 000 for a single tax filer, $150, 000 for married couples filing a joint return), and saving up an eight-month emergency cash fund. And when all of that is done, go back and max out on your 401(k) contribution and save a bit more for retirement in a regular taxable account.”
While opinions vary on issues such as the size of your emergency cash fund (eight months is on the high side of most recommendations), Orman makes a number of good points, particularly with regard to retirement savings… After all, your kid(s) can always get financial aid to help pay for college, but the same can’t be said for your retirement.
5 Responses to “Saving for College”
My husband and I saved for college since our two children were born. With additional help from grandparents, both were able to attend private college and we paid cash. Great, you say? Not really. We make an average living. Because the money was already available for the kids, in their names, it made them ineligible for any grants or financial aid. You might ask why would that matter? It didn’t matter to us at the time. But now, ten years later, we have many friends who are sending their kids off to college. These friends also make a good living; however, they never saved a dollar toward college. But they own their homes outright and go on great vacations and drive expensive cars (we don’t, of course, because we were busy saving for college). Ironically, they are eligible for all sorts of grant money and aid. In the end, it doesn’t seem fair to us. I don’t recommend saving money for college at all. I wish we had put the money under a mattress and given it to our children after they graduated.
I could not agree more. I would also add that a college savings product should be safe, match college inflation and provide tax benefits.
I would also suggest achieving some of your goals concurrently. In other words, you can save for college while saving for retirement. something to think about as they are both important.
Interesting post. Great to keep things in perspective and not ignore one aspect for another. Thanks for the tips.
Speaking as someone who paid for her entire college education (because my parents could only afford to give me minimum help), I’m glad I did it that way. Kids who have to take a large part in their college expenses getwhy they’re there and don’t think it’s a 4 year all-expenses–paid-by-parents-party!
that seems to be a total rip from an article I read on Motely Fool, http://www.fool.com about a year ago…
it said the same thing you said too 🙂 “It may sound selfish, but there are financial aid, scholarship, and student loans for your kid’s tutiion. There aren’t any of that for your retirement!”