How I Am Saving for My Daughter’s College Education
Today’s guest post is by David Chen of MillennialPersonalFinance.com.
As a Millennial parent, how my daughter and I will pay for her college degree is a large concern of mine. With so many college graduates, including myself, having roughly $30,000 to repay at graduation, everybody will agree that college is expensive. Historic trends show that the cost of college will only continue to increase.
Put Money in College Savings Accounts
A recent TD Ameritrade survey shows that many Millennial parents feel the same way. Having student loans themselves and knowing that their children probably will as well, the average Millennial household is saving $310 per month for their children’s college degree. The best way to save and watch this money grow in value is a 529 college savings plan that invests the contributions tax-free and earns interest.
This savings rate is impressive as many Millennial parents are still paying back their own student loans. Instead of paying their loans off first and then saving for their child’s education, they are doing both at the same time.
Budget for the Future
How do I save money for my daughter’s education? I budget for it.
Even if you don’t have your own student loans to pay back, you might have other loans like a mortgage or car loan. By using a budget, you make there is enough money to make the minimum monthly payment by living within your means.
Another advantage of using a budget is that you can see how much money you can set aside each month for future expenses like a mortgage down payment, a replacement car, retirement, and my daughter’s education. I try to save as much as possible for future expenses so I don’t need to borrow money. I don’t want to borrow money to buy a new car just as much as I don’t want to see my daughter have to borrow money to go to college.
Make Personal Sacrifices
Budgeting alone might be able to help you save enough for your child’s education if you have sufficient time and income. Sometimes we have to make personal sacrifices by cutting expenses like taking a lunch to work instead of eating out or taking a less expensive vacation. Each of these actions can easily save at least $1,000 every year from your current spending habits.
Part of being an effective parent is learning to be less selfish. Becoming a parent changes your personal and financial priorities from when you were single, newlyweds, divorced, or happily married for years. We still enjoy life, just in a different way. At any rate, life will be more enjoyable if you aren’t trapped making minimum payments.
I Want My Children to be More Financially Prepared than I Was
The same TD Ameritrade survey shows that 6 out of 10 Millennial parents are “happy” to help pay for their child’s college education and 4 out of 10 Millennials are “proud” to help pay for their child’s education. From first-hand experience, I know how student loans affected some of the professional decisions I made in my first working years. This is why I plan to teach my daughter all about student loans and how they work.
By having as few student loans as possible, my daughter can pursue more fulfilling career choices without having to worry about affording the student loan payment along with the other bills that come with being an adult.
It’s More Than Helping Her Graduate Debt-Free
Along with helping my daughter receive a financial head start, I also want to teach her other life lessons. Showing them how I save for their college education through responsible money management is a personal life lesson they can witness and apply for their own financial goals.
Before she moves away from home and enters the workforce, the best time to learn life lessons is as a child. This gives her the opportunity to learn from my successes, mistakes, and a period for her to learn as much as possible through trial & error when she isn’t responsible for her own family. This will show itself during college when students get to show off what they know.
How we manage our finances can be a reflection of how we live the rest of our lives. As we all want our children to be better than we were at the same age, being a living example is one of the ways I plan to prepare her for the future.
Any Parent Can Do the Same
There are many different approaches to saving for college that you can take with your own children. One of my financial goals is to have our children begin their careers debt-free and borrow as little for college as possible. I plan to do as much as I possibly can by creating a budget to track my spending so we can live within our means today & save the extra income for the future like college and retirement. The second is to have my children understand the importance of saving & avoiding debt so they can accomplish their own financial goals and do the same for their children (i.e. my grandchildren)!
David Chen is a blogger at Millennial Personal Finance. He Is an engineer, an avid skier, and a personal finance enthusiast.