Even though our boys are 2 years old and 2 months old, it is not too early to start saving for college. If our children get into college, we want to help pay for it. Unfortunately, the estimated costs for a 4 year degree in 16 & 18 years are pretty terrifying. Furthermore, saving for college to cover all of the costs is out of reach for most people, let alone families with multiple children. I made the graph to show how much money a family would have after 18 years of saving, with arrows indicating average tuition costs for different 4-year college types.
$500 per month will barely cover the costs of 1 child attending a 4 year in-state public school.
Spending For College
Vanguard has a cool calculator that helps you estimate the 4 year cost for college. We picked a state school with an average tuition for our calculation:
That’s $198,669 for 4 years, per child. If we wanted to pay for 100% of our boys college, we need to accumulate $400,000+ in 16-18 years. Inflation plus the rising costs of secondary education make the prospect of saving for college pretty hairy.
Saving For College
I used my favorite online calculator to figure out how much we need to save each month to hit $400,000 in 18 years:
$875.23 per month EXTRA saved to fund our kids college. Also, if we decide to have another kid (likely), we would need to save $1,171.59 per month. When we apply the SMARTER goal strategy, we realize that it isn’t an attainable goal and need to readjust.
Apply the SMARTER Goal Strategy
To give ourselves the best chance of success, we need to figure out a specific, meaningful, attainable, relevant, time-bound, evaluated, & recorded goal.
After a discussion with my wife, we decided that we would not sacrifice our retirement for our children’s college education. After all, you can borrow for college, but you can not borrow for retirement. We do want to help them with college (if they decide it is right for them), they shouldn’t start out life with crippling student loan debt. We decided that we wanted to contribute half of the expected tuition cost for an in-state 4 year university. However, what if college isn’t really for our kids? Would they feel obligated to attend anyway since we have money set aside for it? Our solution is that we will only pay for years 3 & 4, they cover the first 2 years. That way we actually have 18 and 20 years to save, we would need to set aside a more manageable amount:
Baby # 1 – $100,000 ($157.55/month to hit the goal)
Baby # 2 – $110,000 ($160.49/month to hit the goal)
What If They Don’t Go To College?
We decided that the only way our kids would receive 100% of the 529 is if it goes towards education. If they made the decision to not go to school (college/trade/vocational) they will get a fraction back for a specific use, we will keep the rest. To better explain that point, here are some examples of what a non-education post high school decision might look like:
Example 1 – Start a business
We will contribute money (40%) towards the start up costs of their business.
Example 2 – Start working
We will pay for the transportation so they can get to their job. We may also pay their housing expenses for 1 years (up to $24,000 total.)
Example 3 – Enlist in the military
We will pay for a vehicle and help purchase things to furnish their quarters (up to $24,000 total.)
Certainly there are many more options outside of schooling, but this gives us a general plan to build off.
Is Saving For College Possible For Us?
In order to afford to cover our kids’ 529 plans, we need to put about $320 away each month. I previously mentioned that we may be able to get rid of our car payment in the next month or so. Obviously, the $463 car payment would make saving for college much easier if we put it all into the 529 plan. Unfortunately, we have already earmarked that money for to pay off our Home Equity loan faster (snowballing debt.)
Fortunately, my wife returns to work part-time in January. Assuming we don’t allow lifestyle creep to whittle away her income, we will be able to use a portion of her income to fund multiple 529 plans. Therefore, YES – we will be able to pay for 2 years worth of college education for our children.
Our SMARTER Goal – Saving for College
Save $320 each month into our 529 plans in order to accumulate ~$100,000 in each account by the time each child graduates high school.
Specific – Check! We have the amount we need to save, where it goes, our target amount and the deadline.
Meaningful – Check! Being able to help our kids out means a lot to me as a father. It’s another way I can take care of and support them.
Attainable – Check! We had to adjust our expectations down when we realized that we wouldn’t be able to cover everything. Because we only plan on covering years 3 & 4 the goal is attainable.
Relevant – Check! Saving for college is just another way for me to build spreadsheets and track the growth of money over time!
Time-bound – Check! We have 18 & 20 years to accumulate the ~$100,000 we think we will need to cover half of the college expenses.
Evaluated – Check! Even though I don’t include 529 Plans in my Net Worth updates, they are part of my monthly review.
Recorded – Check! We’re putting the goal here on the blog. In addition to the blog, we will also put more details down on paper so when the time comes to talk about the 529 with our kids, we will be prepared!
We have 4,296 days until we reach Millionaire Retirement Status. Beyond that, 6,519 days until our first born might be starting his Junior year and using this 529 Plan money.