Fairly regularly on The Simple Dollar, I mention that I’m investing in 529 college savings plans for my two children. Each month, I automatically contribute $100 to each of their plans – and I’ve considered contributing more than that.

But what’s a 529? Erin writes in with a typical query:

You write all the time about saving for your kids college education in a 529. What is that? How do you do it?

Let’s dig in.

What Is a 529?
A 529 plan is simply an investment account with a few tax advantages that make it very useful for saving for higher education. To be specific, any interest or investment income earned in the account that is then used for higher education is exempt from federal taxes (and from state taxes in many locations). In some states, the contributions themselves are deductible from state taxes.

There are two types of 529 accounts: prepaid accounts and savings accounts. Prepaid accounts are used to purchase tuition “credits” at certain institutions at current rates, so, for example, you might be able to purchase a semester’s worth of tuition at East Overshoe Tech at the current rate of $10,000 a semester, but in fifteen years when your child is actually attending the school, tuition might cost $20,000 but you won’t pay a dime – you’ve already purchased that semester.

On the other hand, savings accounts are basically just investment accounts – you contribute money, it goes into the stock market or into bonds, and any gains you earn stay within the account. When the account’s beneficiary goes to college, the money can be used at any school. In other words, savings-style 529s are more flexible, but they often don’t return quite as well (since higher education tuition growth is usually greater than the stock market).

Most states have their own 529 plans with specific rules; however, many states have plans that are open to people from other states to contribute.

Another important aspect of 529 plans is that the beneficiary does not control the account – the person that opens the account controls the money. This is a great protection, as it keeps overzealous children from “cashing in” on their college savings.

How Do I Do It?
My investments go through College Savings Iowa. This offers me a number of specific benefits.

First, as an Iowa resident, my contributions to my children’s plans are deductible from state income taxes. Largely because of these contributions, we received a refund on our state taxes this year, while we had to pay in a small amount on our federal taxes.

Second, College Savings Iowa uses Vanguard to manage their investments, and Vanguard is a company I already trust with my retirement savings and other investments. The plan offers quite a few stellar investment choices – I’m currently using the “aggressive” target investing plan for both of my children, which is a low-cost collection of index funds that strive to earn large returns.

Third, the plan is tied in directly with Upromise. Once I signed up with this program, a small percentage of our credit card usage goes straight into those 529 accounts. It’s usually a small amount each month, but this money is essentially an additional free contribution to my children’s college savings plans.

How Do I Sign Up?
First, you need to decide which plan to use. Most states offer their own 529 plans, but they all vary quite a bit. You should start by seriously considering the plan in your own state, because many state plans offer income tax breaks for state residents – you can find your own state’s plan by Googling your state’s name and 529.

If your own state doesn’t offer a plan or only offers a plan you don’t like (such as a 529 that only allows prepayment of tuition to universities you don’t like), look at plans available in other states. Liz Pulliam Weston at MSN MoneyCentral has identified five great state plans, for starters.

Once you’ve signed up, you’ll set up an automatic investment plan that draws whatever amount you specify each week or month from your checking account and puts it away for your children’s education (or your grandchildren’s education … or your own). It’s quite easy, and it’s a great way to get started with college savings.

When I first went to college, I was lost. I had grown up in a tiny town where virtually everyone around me had started factory jobs straight out of high school. I literally knew no one (other than my teachers) who had attended college at any level. I more or less guessed at a major based on the advice of people around me who, quite honestly, had very little idea, either. I had no idea what would lead to success in school – I figured you just went to classes and goofed off all the time.

Luckily, I found three mentors while there that turned things around for me, showing me what I needed to do to succeed, providing me with advice when I needed it, and pushing and prodding me to move forward.

My first mentor was a professor who was also my academic advisor. He took a distinct interest in me (likely because I seemed so lost, but at least I was somewhat aware of it) and helped me find my first job (in a public computer lab) and then, later, my second job (in a research lab). Over the years (even after I graduated), we kept in such close touch that I wound up being one of the speakers at his retirement ceremony. He took me under his wing as an aimless college student and gave me direction and motivation.

My second mentor was a system support specialist that was charged with “overseeing” the computer lab where I worked. We mutually helped each other out several times and, eventually, he not only introduced me to my third mentor, but he provided a lot of the motivation I needed to launch a writing career. I still swap messages with him all the time. He helped me refine my direction, find the right place to continue to grow, and provided continuous advice along the way.

My third mentor was a professor who was my direct boss for six years. He would assign me projects that were vaguely defined and would require me to really push myself and find new skills, and he dropped just enough carrots along the way to keep me growing. He encouraged me to add a second major (computer science) to complement my first (biology). As I neared graduation, he actually created a full-time position for me in his lab that lasted for two years, then he helped me transition that experience directly into a federal job. He opened the door to my career.

At the same time, though, I interacted with a lot of professors, advisors, and others who didn’t seem to click with me at all. They provided very little help along the way. Often, it was clear that they were just telling me things to get me out of their way. Sadly, I found that most college students tend to wind up with a negative perspective of professors and advisors in general because of these experiences.

How does one separate the wheat from the chaff? How can a college student find a good mentor that can help him or her on the path to a good career – and avoid the ones that provide little or no help? Here’s the game plan for doing just that.

Know what you’re passionate about. No mentor in the world can help you if you don’t bring some of your own passion to the table. If you’re not enthusiastic about anything that overlaps a potential mentor’s enthusiasm, you’ll almost never click in any significant way.

So, find what you’re passionate about. Get started on this as early as you can, so that you can use this information to select a major that best matches what fuels your fire.

Find people at the school who share your passion. The best way to start is to look for extracurricular activities that relate to that interest – and I use extracurricular in the broadest sense of the term. Join clubs. Go to public lectures. Attend every optional program and session that you can that relates to your interest.

What you’ll begin to find is that there is a consistent group of people that attend many of these events. Professors, department heads, graduate students, and strongly motivated undergraduates will be in that group, and what they all have in common is an interest in those shared topics and the energy to reach out to discover more. Somewhere in this group is a great mentor for you.

Get in the mix by asking questions. Standing in the background won’t do the trick. You need to participate in the discussion. In almost every environment, the best way to start is to ask questions. If you don’t know, ask. Listen. Ask some more.

Eventually, you’ll start finding people in this environment that you click well with. You’re getting closer to a great mentor – those people that you’re clicking with are conversational and share your passion. When you begin to identify some potential mentors, ask around about them. Do your own research, too – Google the person and see if you can find information about them.

Ask. The best approach is usually to simply ask if the person you’ve identified as a potential mentor has some time to meet with you and answer some questions. Any potential mentor worth his or her salt will happily agree.

When you meet, simply lay it out there. Talk what you’re passionate about and why you’re passionate about it and simply ask how you can get going with regards to following this passion as a career. What can you be doing now? What can you be doing in the future?

Any number of things can come from a meeting like this. There might be an opportunity for paid work or for volunteer work. The person might be able to point you towards another person or situation that might be more appropriate for you. Other times, the mentor might just be a source of good knowledge.

If you get an opportunity to prove yourself, make the most of it. Do your assigned tasks as well as you possibly can. Ask questions – but hold back on the “stupid” questions and find the answers to those yourself.

You’ll find that, if you’re passionate and quite willing to utilize that passion, a good mentor is continually willing to offer good advice, answer the questions you may have, and often open doors for you, sometimes in unexpected ways.

Good luck!

This past weekend, my wife and I were watching Clark Howard’s show on Headline News. During the program, Clark stated a canard that I’ve heard several times from personal finance “gurus” over the past couple years: instead of saving for a child’s college education, parents are better off saving for their own retirement.

Clark’s main reason was pretty simple: people can’t receive scholarships or student loans for retirement. Obviously, that’s true: my children will be able to get all kinds of assistance for their college education, while I won’t be able to get any sort of aid for retirement. Not only that, if your child does have to get into debt for college, they’ll have many, many years to earn their way out of it, whereas when the children go off to college, you won’t have too many years to keep saving for retirement.

On paper, the argument does make a lot of sense. On paper.

This equation leaves out an enormous human element. For many people – myself included – retirement isn’t the big ultimate goal. I might like to think about retiring a bit early, but my big motivation in life isn’t related to retirement at all.

My big plans right now involve guiding my children into adulthood with enough life skills and opportunities that they can basically choose to do anything they want – and run with it. In most ways, my financial choices revolve around that motivation. I started 529 accounts for my children before they were even born (starting them with myself as beneficiary, then changing it). I’m already investing in educational opportunities for them.

Yes, I’m saving for retirement. However, I could be saving substantially more for retirement if I were not directing significant money to my children’s future – and I don’t just mean college savings, either. Other opportunities, such as camps that revolve around their interests, international trips, equipment and instruments they might need, and so on are also important – and by planning for them and saving for them now, I reduce the chance that changes in my career will affect the opportunities that my children have.

Clark’s advice is correct on paper, but it leaves out one of the biggest aspects of personal finance: setting your own goals. Most of my goals revolve around my children – thus, my savings and investment choices revolve around what paints the best future for them.

The lesson here is not every “rule” of personal finance applies to every situation. Instead, you should figure out what your own goals are and then seek out advice on how to make those goals actually happen.

Good luck!

Over the last few weeks, I have been reflecting on how many members of my rather close extended family are either near high school graduation or are in college right now. They have so many great opportunities ahead of them in the next few years – and so many chances to botch things, too. Stephen, Brittany, Robert – these are some of the stupid things I did in college that I wound up regretting financially for years. In some ways, I’m still suffering the repercussions. Don’t do the same.

One of the first major articles I wrote on The Simple Dollar was a ten-part series that amounted to my personal financial biography – if you’re interested, it starts here. Reflecting back on a lifetime of financial mistakes, I always come back to the idea that my college years were when things really went off the rails for me. Those first years of financial independence, where I had no idea what I was doing with money and no sensible guidance to help me out, caused me to develop a lot of atrocious money habits. While I covered a few of them in the biography, I felt that I only really scratched the surface when it came to the mistakes that I made.

Here, then, are the seven biggest financial mis-steps of my college career. I sincerely hope that you don’t make the same ones.

1. Going in the door without a clue.
When I went to college, I not only had no idea what I wanted to study, but I had absolutely no idea what the experience would be like. The end result? I wasted a lot of time in classes that I didn’t really need. I spent time blindly involved in activities and social events that never really clicked with me. I built at least three distinctly different groups of friends during my college years – and watched them all dissolve in a blink. I failed to really get involved with anything interesting until very near the end of my college years.

What I should have done More than anything, I wish I had spent my junior and senior year in high school doing some real soul searching to figure out what I wanted to do with my life. I also wish I had asked everyone I knew that had attended college for advice on the experience just so I knew what things people consistently found valuable. I didn’t do either of these things.

2. Extending my stay for two extra years.
After four years, I had actually managed to complete a degree within the years covered by my scholarship. Sounds like a perfect time to start a second one, huh? I spent two more years in school – paying out of pocket via student loans – earning a second degree.

What I should have done Again, if I had properly explored my interests early on, I would have had a much better idea as to what I should have studied in college. Similarly, I should have ignored any and all advice relating to what major you should or shouldn’t have if you want to earn a good income. Earning a good income relies much more on building diverse and marketable skills, not what you majored in – what’s actually important is that you completed a degree and learned some generally useful skills along the way.

3. Failing to take advantage of all of the non-classroom opportunities.
I spent much of my extracurricular time in college wasting time. I played piles of video games, hung out with a lot of people that I barely saw again after college, watched piles of awful movies, and thoroughly explored the outer boundaries of wasting time. While “downtime” is a healthy thing in reasonable amounts, I certainly burned through more than my fair share of it.

What I should have done I don’t entirely regret all of the time I spent involved in such frivolous activities – some total leisure time is good for everyone’s mind. However, I should have spent at least some of that time involved in activities that were simultaneously fun and also enriching in some fashion, such as seeking out interesting organizations to participate in or getting involved with volunteer projects or actually building some connections and friendships with people on some version of my own career path. I didn’t do any of that, and it was a profound misuse of my time and also of my financial investment in school.

4. Signing up for a credit card – then using it with reckless abandon.
During my second year of college, I signed up for a credit card at one of those little booths that credit card companies like to stick up on college campuses. I don’t remember exactly why I signed up – it probably seemed like a good idea at the moment and I likely got a free t-shirt out of the deal. The real problem came later – I decided to start using it a little. And, rather quickly, a little turned into a lot. By the time I left school, I had thousands in built-up credit card debt.

What I should have done Signing up for the card wouldn’t have been a huge mistake if I had a plan in place for using it. I should have simply used the card to pay for textbooks each semester, then lived off of my stipend and the money I made from a part-time job. That way, I could have built up my credit in a positive fashion and not left college with a bunch of needless consumer debt that required me to keep writing fat payment checks for years.

5. Not taking my classes with enough seriousness.
For the first few years of my college career – actually, for all the years except for my last one – I believed I could coast through things using the awful study habits I had built up during my high school years. In other words, I believed that I didn’t have to study for tests and that I could handle assignments by doing them the night before. Both assumptions were absolutely ridiculous – and my GPA suffered greatly for it. My final year’s GPA was almost a full point higher than my cumulative one – and my final year was the only one that I used healthy study and assignment habits. That GPA turned out to be a barrier against getting into graduate school in my area of interest – and it also didn’t help with my initial job hunt.

What I should have done I knew from the start that my study habits were awful, but I was able to squeak by with those habits. Instead of just squeaking by, I should have put serious effort into picking up solid habits from the start – and there were certainly opportunities for it. Simply using better classroom and study habits would have substantially raised my GPA – and likely substantially raised my short term post-college earnings and opportunities.

6. Not figuring out how to manage my money right off the bat.
For my first four years in college, I used a check cashing service to cash my paychecks from my part-time job, and I used money orders to pay bills. Seriously. I would dock myself 4% for the check cashing fee, then I’d dock myself almost another dollar for each “check” I would write. Even when I finally got a free checking account at a local bank (with free checks!), I didn’t even try to keep the account balanced at all. Instead, I mostly just relied on memory and whatever balance the ATM told me I had in the account. The end result? Lots of ATM fees and more than a few overdraft fees during those heady college days.

What I should have done I should have signed up for that free checking account on the first day of school. If I were doing things all over again, I’d sign up for something like ING’s Electric Orange so I could do most of my checking account business purely online and have any paychecks directly deposited there. That way, I would avoid almost all of the stupid fees I paid, have access to all of the information about my account all at once, and also earn some interest on that balance.

7. Living large off of my stipend and student loans.
During my first four years of school, I actually had a surplus of scholarships that enabled me to receive a small living stipend while I attended school. Yet I managed to spend all of that, all of the money I earned from my part-time work, and built up some credit card debt as well. During my final two years, I took out the largest student loans I could so that I could continue to have that “stipend” money and keep living that lifestyle.

What I should have done I should have actually attempted to live the cheap college student lifestyle. There was always tons of free entertainment available around campus, and plenty of free food if you attended group meetings. I didn’t really need all of the electronics I bought, either – most of them were scarcely used at all. Instead, my focus should have been on trying to build up some savings my first four years so that my student loans would have been lower my final two years – or, even better, that saved money could have been a good start on my post-graduation life had I been able to actually graduate in four years.

What did these mistakes add up to? When I left college, I had over $30,000 in student loan debt (unnecessary), two degrees (one of which I didn’t really use at all), several thousand in credit card debt (totally unnecessary), a subpar GPA (easily avoidable), and only a few good connections and friendships that lasted into post-college life (although the few I had turned out to be very good ones). In many ways, I’m still paying for those mistakes, many years after graduation.

Don’t let it happen to you.

Between Christmas and New Year’s, we’re taking a look at five common New Year’s resolutions that people often adopt for their finances, evaluate some of the traps that people fall into with regards to that resolution, and come up with some real actions that can turn a challenging New Year’s resolution into a success.

We grow up. Many of us get married. Some of us have children. And when that happens, everything changes. You realize that you’re responsible for the positive upbringing of a child, and you can’t simply wing it any more. You have to plan for the future now, because your child can’t simply make it on his or her own if you can no longer provide.

I went through this very process myself as a young adult. When I was single, I didn’t really worry about the future much at all – if I were to suddenly drop dead, it wouldn’t really have much of an impact on the rest of the world. When I got married, I occasionally thought about how my passing would affect my wife, but again, it was not something that ever seemed pressing.

When I had children, though, everything changed. As I held my children in my arms and witnessed how defenseless they were, I quickly began to realize that I needed to plan for their future – and protect them in the event of the unthinkable.

This is a resolution that many new parents make. Their heart is in the right place – they sense that they need to protect their kids – but actually taking the steps to ensure protection can be harder than it seems. Thus, like many resolutions, this one falls to the wayside along the road paved with good intentions.

Don’t let it happen. Here are some direct actions you can take to protect your family’s future right now.

Life insurance A simple term life insurance policy for yourself (and for your spouse) to cover your child-rearing years can go a long way towards ensuring the financial stability of your children during their childhood. For younger adults (such as those with young children), term policy rates are pretty inexpensive – don’t hesitate to shop around.

How much should I get? There is no set recipe to follow in terms of amount, but it’s probably good to have a policy worth at least enough to pay off all household debts plus provide at least a couple years’ worth of your income to the family.

Long term disability and care insurance Many people overlook these types of insurance, but much like life insurance, they’re very low cost for a young adult and they provide protection for your children against an unthinkable situation. Much like life insurance, shop around for both kinds of policies and know what they cover.

Your will This is often something that’s done in conjunction with one’s spouse. The major decision that most people have to make with regards to their children is who you wish to assign guardianship to in the event of both of you passing.

Don’t take this decision lightly. Spend some time considering the options available to you, and don’t be surprised if you come to an unexpected conclusion in the end. You may find that as you consider the situation more deeply, the factors of highest importance to you in choosing a guardian actually change, and that may actually change who you would choose to be a guardian for your child.

The actual process of creating a will is simple and only takes a brief session with a lawyer (I tend not to trust do-it-yourself will packages). Even if you’ve not considered the question above, call now and make an appointment with a lawyer you trust. That way, the date is set in stone and you’re sure to go through with it.

College education planning Another important element for parents to consider is their child’s college education. Do you intend to pay for all of it, just contribute a portion of the cost, or have the child pay for the cost? Different parents have different philosophies when it comes to this crucial decision, but if you decide to help, you should start as early as possible.

How? The most straightforward route – and one that has solid tax benefits, too – is to open up a 529 college savings plan for your child. 529 plans allow all interest earned to be tax free if it’s used for educational costs, and often the contributions are tax-deductible on one’s state income tax. Use Google to identify the plans available in your state. Most plans offer a customized investment vehicle that starts off aggressively when the child is young, then scales back to more conservative investments as the child grows older and approaches college age.

The big dilemma will be choosing how much to contribute. I recommend setting up an automatic contribution plan where you contribute a small, reasonable amount each month. This way, once you’ve set up the plan, you really don’t have to actively think about it too much – it just slowly builds up for your child over time.

Amanda writes:

After taking a serious re-evaluation of my life over the last year, I finally realized what I should be doing with it. I want to be a nurse. I attended college several years ago, but I majored in English Lit and didn’t finish my degree. How can I plan for this financially?

Going back to school is a pretty common goal that people have. In fact, my mother-in-law went back to nursing school when she was in her forties because, after many years working in a research lab, she realized she had a calling and a gift to interact with and help people.

Along those same lines, I have actually considered going back to school to work on a degree in political science, as I’m moving more and more towards being involved in local and state politics. I’m mostly interested in such a degree to help me build upon the connections I’m already making in the local community and get a firm grounding in how politics work.

If you’ve come around to the idea of going back to school in order to reboot your career (or extend it), here are the steps I’d take along the way.

First, do the personal investigation to find out if this new career you want is really right for you. Talk to people that are already in the career that interests you and simply tell them your story. Ask what their actual workdays are like. Ask about the education that was required for them to get their job.

If you’re heading towards a completely new career track (as I would be if I followed up on the political idea), it’s a good idea to contact multiple people at various points along the career track to get some input. For example, for a political person, you might want to talk to campaign staff, state legislators (and their staff), members of local boards, and so on.

If you can, dabble in this track in your spare time. Do volunteer work, or get involved in organizations where you can meet people who are involved in this career track.

You may find out from this alone that the career path isn’t for you. I know, for example, that I’ve mentored at least one writer who decided that the day-in day-out research and creative efforts were too much for him.

Don’t do this lightly. The decision to leave your current career and find a new one is a serious leap and likely a very expensive one. Don’t simply jump from one career that doesn’t excite you into another one. Find out as much as you can from the outside first, until you’re highly confident that this new career is the right one for you.

Next, critically evaluate the educational needs of that career track. What sort of schooling or degree do you actually need to get your foot in the door. For example, with nursing, a degree is essentially required in order to practice professionally, but with politics, a degree is far from required to get involved – it’s merely a way of building a strong base of understanding.

The way to do this is through research and also through asking your contacts what education is required. Look at job listings and find out the minimum requirements for the types of jobs you would apply to at the start of the career path. What do you need that you don’t already have?

Once you’re sure you want to follow this new path and you know what you need to do, then start worrying about the costs of education. Start evaluating institutions that are available to you and get a realistic cost estimate.

Depending on the amounts, you should start saving cash in a 529 plan set up to match the target date that you expect to start attending school. If the date is close, the cash will be invested largely in very safe investments (cash, bonds, etc.), but if you know that school is a long time off, the money will go into more risky investments with a larger upside (stocks, real estate, etc.).

There is one thing that’s more important than anything else along the way, though.

You have to get started. Now.

If you have a dream burning inside of you, don’t just let it sit there and idle. At the very least, take that first step. Find out more about what it actually entails. Find out what that career would actually be like. Then, take that information, do some serious soul searching, and figure out for yourself if it’s right for you.

If you let your dreams just sit idling on the runway of life, eventually those dreams will run out of gas and never take flight. Take that first step right now. Do some research about that dream career and find someone to talk to about it. Even if you realize it’s not for you, you’ll never regret having taken that first step.

One question I often get from new and expectant parents is how much they should be saving each month for their child’s college education. Obviously, if you’re looking at paying for college eighteen years down the road, there are going to be a lot of unknowns: how will college funding change by then? How much will tuition go up? How will parent contribution expectations change?

Even with those kinds of variables, you can still come up with a reasonable college savings plan for your child, even at birth. Here’s exactly how we made the calculations for our own daughter at birth.

First, how much do you want to save?
This is more of a personal question than anything, as different parents have different philosophies and there is no real right or wrong, just different styles.

Some parents believe in a philosophy of no college savings for their child, believing that the lessons learned in paying for one’s own college career are quite valuable. The knock against this is that many students who are put into this position leave college with a tremendous amount of debt.

Other parents believe in a philosophy of paying for all of college – or as much college as possible. Doing this ensures that the child gets into the “real world” with as little burden as possible. Of course, the argument here is that it makes a college education seem much less valuable to the student and has been shown to result in worse grades as well.

Many parents wind up somewhere in the middle, setting a goal of 1/3 or 1/2 of college expenses. For us, we’ve adopted the philosophy of paying for 1/3 of tuition and all textbooks and other educational expenses (like a computer). We want our children to have to work for it, but we also want to take the edge off of their financial burdens.

Action Point #1 Sit down with your spouse and figure out how much of your child’s college education you want to cover. There’s no correct answer for this, only what you feel is right.

Determine a dollar amount
Once you know the percentage of college expenses you want to cover, you’ll need to come up with a target dollar amount. The first step is what college or university would you like your child to attend, realistically? Some families might insist on Ivy League, others might think the local state university is the right choice. For me, I’ll use the school I really wanted to attend (but simply couldn’t afford): MIT.

I discovered that tuition and fees at MIT cost $34,986 for 2007-2008, with a total tuition, room, and board cost of $44,936, but that the average student receives $28,000 in scholarships. That leaves a remaining cost of essentially $17,000 for tuition, room, and board. They also estimate $2,800 for additional college expenses, such as textbooks and supplies and other activities.

Action Point #2 Pick a “target school” and obtain tuition, room, board, fee, and other expense estimates for the most recent year, as well as an estimate of the average scholarship package that a student receives.

Since my wife and I intend to pay 1/3 of the tuition, room, and board and all of the additional college expenses, we would be on the hook for about $8,500 a year in today’s dollars.

But then there’s inflation. It’s reasonable to expect a 6% annual inflation rate for these expenses. Given that, we should expect to come up with about $25,000 a year for our child’s expenses, totaling $100,000 over the four years they’re in school.

Ouch.

Action Point #3 Calculate the portion of the education you intend to pay for, then adjust that amount for the correct number of years of inflation (6% a year is a reasonable calculation).

What’s the plan to reach that amount?
In essence, to follow our plan, we need to save $100,000 over the next eighteen years. Thankfully, we have mechanisms like 529 plans to save for college without having to worry about taxes, but that’s still a mighty goal.

If I assume an 8% annual return on my investment, I need to put away $215 a month from birth to have $100,000 when the child turns 18. If I assume only 7% annual return, I need to save $238 a month.

Of course, I can also assume that I will use other methods to help cover this amount. I might plan to use home equity to pay for some of that amount. There may also be other opportunities for assistance – for example, grandparents may wish to contribute to a 529 as well. You might also decide that you’re aiming unrealistically high with your school selection and choose instead to use a lesser school for your estimates. This may move your estimate downwards.

The key is to figure out how much you need to be saving, starting today.

Action Point #4 Estimate how much you need to be saving per month, then start a savings plan (like a 529) and sock that money away.

One key thing to remember, however, is that if you don’t meet your goal, it’s not necessarily the end of the world. Most likely, if you are making an aggressive plan right now, one that assumes strong accomplishment from your child, your child will choose a different path, one that doesn’t require quite as much outlay from you. Even if they meet or even exceed your expectations, you’ll still be able to help them along their way.

The most important thing is to start as young as possible. If you wait until your children are even eight years old to start saving for that $100,000 goal, you’ll have to save $555 a month to make it with 8% annual returns. If you wait until they’re twelve, you’ll have to save $1,093 a month.

The earlier you start, the easier it will be to help your children with college. If you have young children – or even a child on the way – get started today.

One of the biggest assumptions I read about in books and articles about financial planning for your children is the outright assumption that your child must attend a college or university of some sort after graduating from high school, so you’d better financially plan for it. To me, this assumption is one that needs to be seriously re-evaluated.

The Data
First of all, what percentage of students actually manage to complete high school? According to the National Center for Higher Education Management Systems (NCHEMS), the public high school graduation rate in 2005 was a surprisingly low 68.8%. What about homeschooled and privately schooled kids? The National Center for Education Statistics estimate that 2.2% of all students nationwide are homeschooled, whereas the percentage of private school attendees is 9%. This means that 89% of students nationwide (roughly) are educated in public schools. Even if we assume all private and homeschooled students graduate, the high school graduation rate is still only 72.2%.

What about the percentage of high school graduates that actually earn a degree? According to NCHEMS, 24.1% of high school graduates receive an associate degree three years later, while 52.1% of high school graduates receive a bachelor’s degree within six years. This means that a student in school in the United States has only a 37.6% chance of getting a bachelor’s degree within six years after high school graduation and a 17.4% chance of receiving an associate degree. Note that these numbers are not exclusive – many people receiving an associate degree actually go on to complete a bachelor’s degree. Also note that this number is actually a bit high – it assumes all students in homeschooling and private school situations actually complete their secondary education.

What Opportunities Are Available to the Other 62.4%?
Many people assume that if you don’t go to college and earn a degree, you’re destined for some miserable, failed life, earning minimum wage on a factory floor somewhere. That’s simply not true. There are many opportunities available to those who do not attend a post-secondary institution. Here are four of them.

Trade school Carpenters, electricians, plumbers, and other tradesmen do not have the need to earn a four year degree to ply their craft, and they’re always in demand.

The military Military careers give you the opportunity to see the world, offer tons of advancement opportunity, and open the doors to further education if you so choose.

Entrepreneurship Many big entrepreneurs never completed college – just ask Bill Gates. If you have an idea and a strong work ethic, you’re often making a strong choice chasing that dream instead of stopping and following a degree path.

Service corps Some high school graduates may choose to work for a service organization for a few years in order to figure out what they want to do with their life (and also spend that time benefitting others).

Shouldn’t a Good Parent Expect/Demand Their Child Attend College?
This question troubled me for a long while, because I know from my own experience how beneficial college can be. You can learn critical thinking skills and also get the preparation you need for certain career paths. I spent six years earning two separate bachelor’s degrees and I thoroughly enjoyed the experience.

After I graduated at age twenty three, I spent six years working at two different jobs directly related to my degrees, both of which I enjoyed quite a lot and both of which paid well. But the itch inside me told me that I needed to forge a different path, and now I find myself in a self-defined career as a writer focusing on personal finance topics. I’m not trained in English nor in finance, yet this is the path I’m following.

The point is that college itself does not define the path that your life will follow. When you enter college after high school, you’re moving from thirteen years spent in the educational system directly into another number of years in the educational system. If you’re one of the lucky ones, you’ve already figured out your internal talents and passions and – even luckier – your parents have supported and fostered those talents and passions.

But most incoming college students aren’t there yet. Most of them (like myself and almost everyone I hung out with in college) are either majoring in something that seemed vaguely interesting in high school, haven’t declared a major at all, or are majoring in something that someone told them would earn them good money. And these were those kids in the minority that were even in college at all.

My Alternative College Savings Plan
Given all of this, my primary concern for my children’s educational growth is no longer pushing them to go to college. That’s a secondary concern – one that might be an outgrowth of other things.

Instead, my primary concern is helping them find their natural talents and their natural passions. I intend to encourage their critical thinking skills as much as I can and try to expose them to as many areas as possible while still at home. They’ll try musical instruments, various art forms, sciences of all kinds, and so on, and we’ll see where their natural magnet leads them.

I’m also going to strongly encourage them to be entrepreneurs in their spare time, from selling lemonade to mowing lawns. Or maybe even starting their own blogs – I’ve discovered some amazingly successful bloggers early in their teen years.

So how do I save for this? I still have a 529 plan for them, but that’s only part of my financial preparation. I’m also planning on many expenses earlier on, engaging them in activities and experiences of all kinds to help them find their passion.

If they find their talent and passion and it doesn’t guide them towards college, no big loss. I’ll just convert their 529 into an ordinary mutual fund and hand it over to them as seed money for whatever great things their lives hold for them. For one child, the 529 might actually be for college; for another, it might be seed money for a business or tuition at a trade school or even a house down payment.

The point is that college isn’t the only answer, and to force your children down that path can deny them the opportunity to spread their wings.