09/16/2016
Financial Planning and College Savings: 5 Lessons

Financial Planning and College Savings: 5 Lessons

Parents encourage their children to learn from their mistakes, but when it comes to college savings, they can learn from other parents’ missteps and oversights.

As college costs continue to rise, parents are saving more — way more. According to the latest Fidelity College Savings Indicator Study, nearly three-fourths of parents surveyed are saving for college today, compared to only half in 2007 when the study began. Now 43% of parents expect to cover all tuition costs themselves vs. just 16% of parents in 2007 who intended to pay for all college costs.

The average 2016 college grad with student loan debt owes a little more than $37,000. Even so, more parents are willing to make additional sacrifices to shield their children from heavy student loan debt.

Here are five crucial lessons learned by parents of undergraduate-bound children hoping to boost their college savings preparedness.

1. Consider a 529 college savings account early
24% of parents surveyed wish they would have opened 529 accounts earlier. Starting early can make a big difference, both regarding the total amount you contribute over time, and the money’s potential to grow.

When a family starts saving for college when a child is born, they can save the same target amount while putting away less total money. If family A starts saving when the child turns 12, they need to save $579 per month, assuming a 6% annual rate of return, to reach $50,000 by the time the child turns 18. If Family B, on the other hand, starts saving from birth, they only need to save $129 per month – $450 less than Family A each month, and $13,824 less than Family A overall – to reach the same end goal of $50,000.

2. Treat college savings like a monthly bill
Even if your kids aren’t off to college yet, think of college savings like any other bill. You already have plenty of other living expenses, like rent or mortgage payments, food, entertainment, and a retirement fund, but treating college saving as an essential will help make your goal (and your child’s) a reality.

3. Save $100 more per month for college
One surprising finding from the study was that 45% of parents with kids in 10th grade and older said they could have put away an additional $100 each month in college savings. Half of that group thought they could afford and additional $200 per month. These extra dollars, when invested early, have time to grow into significant savings.

4. Prioritize college savings over impulse purchases
In the survey, 17% of parents said they could have generated more savings by using discipline to reduce impulse purchases. To help, make a list of items that leave you vulnerable to emotional purchases and take steps to avoid them. By cutting back, you can improve your savings habits.

5. Make a solid plan
It may not be comfortable to discuss personal finance with your closest friends, but working with a financial advisor can help you to develop a fruitful plan. 11% of parents surveyed wished they had begun working with an advisor sooner.

To help figure out if you’re doing enough, compare your savings to the average parents in the survey saved – $5,900 a year. Those with a plan in place saved $6,300 on average, while those without saved $4,700.

Even with sizable monthly savings, knowing how to best invest that money can be challenging. Seven out of ten parents wanted more specific recommendations on how to save.

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As the premier wealth management firm in the Washington D.C. area for the past 25 years, OptiFour Integrated Wealth Management provides clients with financial planning and implementation designed to achieve individual goals.

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