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- I value both saving for retirement and saving for my son's college, but retirement is my first priority.
- By communicating with my son early about where we're saving money, he'll be able to go in prepared.
- Just because I'm putting my retirement first now doesn't mean I can't help with education costs later.
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Saving for college (for example, with a 529 plan) can seem so far away when your child is young, but as they get older, it becomes a pressing topic. Now that I have a teenager, I find myself thinking more and more about how to set aside money for college along with all my other financial responsibilities and goals.
My husband and I will still be in our 30s when our son graduates high school. While we are in what some may call our prime earning years, I figured the topic of prioritizing college savings or investing in our retirement plan is a popular debate in many households that are in a position similar to ours.
Recently, I spoke with Ashley Rittershaus, a CFP and founder of Curious Crow Financial Planning, a fee-only comprehensive financial planning firm. She had some thoughts about this topic that helped me form a plan around college savings and investing based on my own personal situation.
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While I spoke with Rittershaus, she emphasized that she was not giving me financial or investment advice. She reminded me that it's important for anyone thinking about these questions to speak with a financial professional for specific advice based on their own unique circ*mstances.
Rittershaus gave me three ways I can develop my plan.
1. Understand your goals and values
Understanding my goals and values has been so important when it comes to determining how my husband and I will balance saving for college and investing in retirement. But I had to ask myself an important question:
Would I be more disappointed by not investing over these next five years or by not funding my son's college expenses?
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"Some common advice is that it's more important to save for retirement than college because your children can take out loans for college, but you can't take out loans for retirement," says Rittershaus. "While this can be true, the best choice for an individual largely depends on their specific financial situation and personal values."
I value both goals, but the truth is, if I opt to skip out on retirement savings there aren't many options for me to get grants, gifts, or donations to make up for that missed compound interest.
Also, I need to be financially stable and have some assets first if I ever want to help supplement education costs.
2. Set expectations
"Once you know approximately how much you'll be able to help with college expenses, be sure to set those expectations with your child early," says Rittershaus. "The last thing you want is for your child to expect you to cover the whole cost of college, and then to find out that's not your plan just as acceptance letters roll in."
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According to the Education Data Initiative, the average cost of tuition (including books, supplies, and daily living expenses) is $36,436. For students who attend a public school, the average yearly cost is $26,027.
While we're not going to be able to save the over $100,000 it would cost for four years at a public state college, I plan to set expectations with my son and what we can do and figure out a game plan.
We will discuss academic scholarships and explain the importance of getting a good GPA. Financially, it's realistic to plan to cover at least one year of college tuition, which would involve saving around $6,500 to $7,000 a year for the next four years.
Our state also offers a scholarship program called Tennessee Promise which covers the cost of community college for two years so long as the student graduates from an in-state high school, maintains full-time enrollment in an approved school, and keeps a minimum 2.0 GPA. This scholarship would help tremendously if we go down this route.
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3. Look to what you can do in the future
Rittershaus says if I can't contribute as much toward college as I'd like right now, remember that I can always give money in the future to be used toward student debt if that applies.
This is something I hadn't thought about before, but I do plan to help cash flow books, supplies, materials and meals to help reduce my son's living expenses in college. The benefit of being able to live with us rent-free after school is also helpful and will allow me to keep pushing forward with my retirement savings goals.
"Setting your child up for financial success can come in forms other than paying for college," says Rittershaus. This might look like instilling good money habits and teaching basic personal finance skills, including differentiating needs versus wants, budgeting, avoiding high-interest debt, and especially a good understanding of how student loans work."
Ultimately, I don't want to be a burden on my child later in life, so it's crucial that I continue saving for retirement. However, that doesn't mean I can't still set him up for success in college by gearing him toward more affordable options and covering some expenses since we definitely won't be able to cover the full cost of tuition for four years.
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Plus, there's no telling what the future holds and circ*mstances can change. With a solid plan in place, my husband and I may be able to get further toward reaching both goals than we originally thought.
Choncé Maddox is a Certified Financial Education Instructor (CFEI) and personal finance freelance writer. Her work has been featured on LendingTree, CreditSesame, and Barclaycard. She earned a Bachelor's degree in Journalism and Communications from Northern Illinois University and resides with her family in the Chicago area.
As an expert in personal finance and investing, I can provide you with information related to the concepts mentioned in the article you shared. Let's dive into each concept:
Saving for Retirement:
Saving for retirement is a crucial financial goal that should be a priority for most individuals. It ensures that you have enough funds to support yourself during your non-working years. Here are some key points to consider:
- Start Early: The earlier you start saving for retirement, the more time your investments have to grow. Compound interest can significantly boost your retirement savings over time.
- Retirement Accounts: Take advantage of retirement accounts such as 401(k)s or IRAs, which offer tax advantages and potential employer matching contributions.
- Diversify Investments: Spread your retirement savings across different asset classes to reduce risk and maximize potential returns.
- Regular Contributions: Consistently contribute to your retirement savings, even if it's a small amount. Regular contributions can add up over time.
- Consult a Financial Professional: Consider seeking advice from a financial professional who can help you create a personalized retirement plan based on your goals and risk tolerance.
Saving for College:
Saving for your child's college education is another important financial goal. Here are some key points to consider:
- 529 Plans: Consider utilizing a 529 plan, a tax-advantaged savings account specifically designed for education expenses. These plans offer potential tax benefits and can be used for qualified education expenses.
- Start Early: Begin saving for college as early as possible to take advantage of compounding growth.
- Set Realistic Expectations: Understand the potential costs of college education and set realistic expectations with your child about how much you can contribute.
- Scholarships and Grants: Encourage your child to pursue academic scholarships and grants to help offset the cost of tuition.
- State-Sponsored Programs: Research state-sponsored programs that offer scholarships or tuition assistance for in-state schools.
- Financial Aid: Familiarize yourself with the financial aid process and explore options such as student loans, grants, and work-study programs.
Balancing Retirement and College Savings:
Finding the right balance between saving for retirement and saving for college can be challenging. Here are some considerations:
- Assess Your Priorities: Determine your financial priorities and values. Consider factors such as your retirement timeline, the availability of financial aid for college, and your child's potential earning capacity.
- Seek Professional Advice: Consult with a financial professional who can help you evaluate your unique circ*mstances and provide guidance on balancing retirement and college savings.
- Communicate with Your Child: Discuss your financial situation and expectations with your child early on to manage their expectations and involve them in the decision-making process.
- Explore Alternative Funding Options: If you're unable to save as much for college as desired, consider other options such as student loans, part-time work, or community college for the first two years.
- Teach Financial Literacy: Instill good money habits in your child by teaching them about budgeting, avoiding high-interest debt, and understanding student loans.
Remember, it's important to tailor your financial plan to your specific circ*mstances and consult with a financial professional for personalized advice.
