If you are anything like me, as soon as the baby was born, a savings account was opened. It just felt like the right thing to do. So what if it only had $3.76 in it, it was something.
Yes, the earlier you start saving, the more compounding interest you will gain, but is college savings really the best place to start saving? After all, there is retirement looming over the heads of most of us. To best plan for both retirement and college, two questions must be considered:
- Which goal is more important?
- How can I save for both?
Which goal is more important?
We all want the best for our kids. We don’t want to deprive them of any potential opportunities that may come about. We want to release them into the world as competent, educated members of society. We also don’t want to work at McDonald’s® when we are 72.
Deborah Fox, who runs Fox College Funding in San Diego, says “No one can borrow for their retirement, but if push comes to shove, they can at least borrow a portion of what they need for college funding,” she says. In fact, Fox recommends parents have their kids take out at least some of the government guaranteed college loans available to them “so they have some skin in the game.”
Deb has a point. College may come first in the chronological order of life, but college also has a lot more cushion as far as how to foot the bill. There are literally thousands of reputable, accredited schools available that run the gamut in terms of tuition. There are also guaranteed federal loans available to students, ranging from $5,500-7,500 per year. Tennessee also has the HOPE scholarship and Lottery scholarship programs. Not to mention academic and athletic scholarships that vary by school. I am definitely not saying to neglect saving for college, but there are many more options when it comes to funding college than there are to fund retirement.
If you give retirement the priority, not only will it ease the burden on yourself in the retirement years, it will also ease the burden on your children. If retirement savings runs out prematurely, options are usually limited to going back to work or relying on children. Adequate preparation ensures that your children do not have to bear the financial burden of your retirement, and can in turn save for their own.
How can I save for both?
First, set up a plan to save for retirement. Meet with a financial advisor and talk through the options and get things moving down the yellow brick road to retirement. After retirement is going, develop a plan for college. If you have enough disposable income, you can budget monthly/bi-weekly contributions into your college account (we will discuss different account options next week). If your budget doesn’t allow for college saving on a regular basis. enlist help
Think about how much stuff your kids get throughout the year from family and friends (i.e. birthdays, holidays, graduations, etc.). A lot right? Take advantage of all of the people who love your kids, and redirect their gifts into savings. Ask your friends and family (the ones you feel comfortable enough around) to only spend half of the money they were going to spend on a gift. Let the other half go toward a college savings account. Contributing a few times a year can add up substantially over 18 years!
Get the kids involved! Start talking about saving for college at an early age, and let them know that they will be responsible for paying for part of their college. Make a big deal about it: open their own account at the bank, show them with charts how much they have saved, reward their efforts, match their giving, etc. If kids are financially invested in their education, they are more likely to try harder in maintaining good grades.
I hope this helps to get you thinking about how you are saving for college and retirement. Next week, we will talk about specific plans available for college savings.