School is officially back in session for most of us here in Texas and I know there are a lot of excited parents ready to get those kids back out of the house! There are also some parents who are really emotional about sending their kids off to school for the first time and there are also a lot of emotionally excited parents. Now for teachers, I don’t think they know how to feel after the year that was 2020 and we’re now looking at this 2021 school year!
But, with the start of a new school year, there are also a lot of parents who are thinking about that next chapter – thinking about college and what to do to get their kids ready for that. One of the questions we recently received was “when do I start saving for college for my kids?” If you’ll remember back to what we talked about a few weeks ago with the magic penny and the power of compound interest, you probably know the simple answer is – as soon as possible. The longer we can give these funds time to grow and compound on themselves, the more benefit you are going to receive – so the earlier you can get started saving for college, the better!
There are lots of options when it comes to saving for college, as to where you can save, and we will touch on those next week. But, before we figure out where to save, we must figure out our goals on what we want to save for. What I mean here is obviously you know you want to save for college, but are you wanting to cover just the first year? Are you wanting to cover everything for them for all four years? Do you want to just cover half of the cost, something like just the tuition and let them either find a job and pay for it themselves or get some loans themselves to build credit, and a way to give them some skin in the game? (So that they take college seriously) You also have to figure out are you trying to pay for most of this out of cash flow and just save what you can now? And also figure out what you can actually fit into your budget and carve out for savings. All these things go into consideration as to what vehicles are going to be the most appropriate, but you’ve got to get those goals figured out before you can pick where you want to save.
We’re talking about how early we can start, but also it’s never too late to start. If your kid is 16 and you have two years left, don’t feel left out, don’t feel like you can’t do anything. You can still save some – you may not be able to cover the full cost unless you can sock away ~$75,000 over these next couple of years, but you can still save some. The vehicle that you use to save may be a little bit different because our time constraints are different now, but you can still start to set some money aside for the first couple years of college.
So, to go back to that initial question “when is the best time or when should I start saving for college?” As soon as that kid gets a social, set something up and start saving for them! Save what you can, save as early as you can, and as often as you can. Just make sure it fits within your goals. Y’all have a good one!