Five years ago, my oldest child, Jeff, started high school. My wife and I were so proud of our ninth-grader — and then we started to panic. Not about the looming college application process, although that was stressful too. We had suddenly realized that we hadn’t saved nearly enough to pay for four years of higher education for Jeff. Not to mention, we have two daughters right behind him — and we hadn’t socked enough away for them either.
My wife and I aren’t high rollers or profligate spenders by any means. We didn’t throw away our children’s college fund on fancy cars, expensive boats or pricey Caribbean getaways. Still, if given the chance to do it over again, there are some things I would change about our approach to college planning. I can’t turn back the clock for my family, but I can offer advice to the younger generation of parents so they don’t encounter the same pitfalls.
1. Respect Time. There’s a reason everyone says that childhood goes by in the blink of an eye: It’s true. We knew we needed to save for college, but kept putting it off by saying, “next year, next year.” Well, those years shot by and before we knew it, Jeff was thinking about prospective universities. As soon as your child is born, set up a 529 educational savings plan. This is a state-administered investment program that allows contributions to grow tax-deferred, and distributions to pay for college costs come out federally tax-free. Then, deposit a portion of your monthly income directly into that account, even if it’s only a small percentage at first. For example, if you start saving one percent of
your monthly income, increase your contribution by one percent each year or every time you receive a raise or promotion. The sooner you establish this habit, the better off you’ll be. It only gets harder to save as the children get older and economic obligations increase.
2. Don’t get discouraged. When our children were small, my wife and I had a financial plan drawn up which included saving for college. Unfortunately, the numbers blew us away; the recommendation was to put aside nearly $800 per month, per child, to pay for four years of tuition, room and board, books and more. With three children, that was practically another mortgage. Needless to say, this disheartening discovery didn’t inspire us to bank any extra cash, yet that’s exactly what we should have done. Even if you can only stash a few dollars away at a time, every little bit helps. You can always bump up the number when possible. With time on your side, it makes a big difference in the end.
3. If applicable, scale back on retirement savings. It’s clearly important to have financial security for your golden years, and no one is suggesting that you stop putting money into your 401(k). However, early on, my wife and I were both pumping the maximum amount allowed from our paychecks into retirement savings plans. With hindsight, I realize we could have reduced our retirement allotment a bit and put some of that savings into college funds. Then once the children are finished with school, you can always ramp up retirement contributions to make up the deficit.
4. Invest a child’s cash. Loving friends and relatives often give your children generous gifts for milestone moments such as birthdays, baptisms and bar mitzvahs. Instead of plugging that money into a low-yield savings account — or letting them blow it on the hot gadget of the moment — put it immediately into their 529 plan. Or open a regular investment account under your name, earmark it for college, and have a financial advisor actively manage it. That way you’ll have a diverse, steadily growing portfolio for your child by the time he or she turns 18, rather than a stack of outdated iPhones.
5. Be wary of so-called stock market bonanzas. Being in the financial industry, I’ve heard many stories about people making some pretty aggressive moves in the stock market and bringing home a bundle, leading them to take riskier bets and eventually losing their windfall. Taking such risks is like playing the lottery. Think of all the money these people could have saved if they had held on to their original shares, and stopped searching for that winning ticket. There would be a nice chunk of change for college costs.
6. Don’t try to keep up with the Joneses. Along the way, my wife and I got caught up in the scramble to take advantage of record-low interest rates and refinanced our mortgage. That bonus cash went towards home improvements, such as the addition of a pool and an extension on the house. These weren’t flashy purchases and they improved the value of our home – but looking back, I wish we’d invested that money in our children’s education instead.
My children will be just fine — and well educated. Even though we were late to the game, we saved a lot while Jeff was in high school. We also made the strategic move of asking Jeff to attend a local community college for his freshman year, which saved us an estimated $30,000. Now, at 19, he’s about to enter a top public university in Maryland, with many of his core course requirements already completed. Our 16-year-old, Kristin, just scored an athletic scholarship to her college of choice, and we’ve already started saving for our 14-year-old, Melaina.
The point is: I wish I knew then what I know now, and that is to save, save, save for college — as early, and as much, as you can. Then go ahead and save some more. You won’t be sorry you did.
If you would like to discuss your family’s financial future with a professional Wealth Advisor at R.W. Rogé & Company, Inc., please call 631-218-0077, or visit our Web site at www.rwroge.com.
Jeffrey Roberto, MBA, CMFC, CFP®
Director of Client Services