With the cost of college increasing almost exponentially lately, I’ve had several requests for information on college planning, so I thought I’d put together some tips.

1. Start Early – Obviously the sooner you can start saving for college, the better.

2. Know How Much You Want To Pay – First decide if you are paying 100%, or less. I read a neat article on this decision that broke down college savings into 3rds. The parents pay a third. The children pay a third. A third is funded from grants, scholarships, loans, etc.

3. Estimate How Much You Are Expected To Pay – By answering some questions about your finances, you can get an idea of what you may be expected to pay. Revisit this calculation and make adjustments as your situation changes. You can find two EFC calculators at: http://www.finaid.org/calculators/finaidestimate.phtml

http://apps.collegeboard.com/fincalc/efc_status.jsp

4. Choose Where to Save – Do you want to save in traditional college funding accounts like 529 plans, Coverdell Education Savings Accounts, UGMA (Uniform Gift To Minor) accounts, or Series I and EE Savings Bonds? Or would you prefer to save in non-traditional college savings accounts like taxable brokerage accounts, Roth IRAs, or others?

5. Calculate Your Monthly Saving Need – There are several online calculators that you can use to determine how much you need to save monthly in order to fund your child’s education.

The next article will discuss college planning for teenage children.

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Rich Feight, CFP
Rich Feight, CFP

Hi, I'm Rich Feight I'm a fee-only Certified Financial Planner, successful business owner, and self-made millionaire that knows how to beat the system and become wealthy. I have a lot of clients that have done it too. I'm also pretty good at finding that ever-elusive work/life balance so many of us strive for. Lucky for you I have an abundant mindset and give all my knowledge away on my blog. So if you want to know what it takes to become a millionaire, follow me.

    2 replies to "The First 5 Steps in College Planning"

    • Don Martin

      Rich: Good article. My concern is that 529’s trap the funds because you can only change the asset allocation once a year. I believe when a crash comes one should sell bonds and buy stocks, so I would very upset at encountering those restrictions inside of a 529.

      Reply
    • Rich Feight, CFP

      Myself, I like the Education Savings Account (ESA) for that reason. The drawback is that you don’t have the contribution limits of the 529. Moderation is usually the key. Diversifying between accounts may address some of your concerns Don. Thanks for the comment.

      Reply

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