Updated on 03.04.12

Start Saving for College as Early as Possible (63/365)

Trent Hamm

Let’s say you have a child today. You’re estimating that their college education will cost $25K a year, so that child is going to need $100K in eighteen years in order to pay for college. Let’s also say you can earn a steady 6% return on that money you save.

If you wait until the child is ten years old to start paying for college, you’re going to have to save $917 a month to reach that goal.

If you wait until the child is five years old, you’re going to have to save $442 a month to reach that goal. That’s a lot cheaper.

If you start when the child is born, you only have to save $271 a month. In fact, if you start as soon as you discover the pregnancy by starting a college savings plan for yourself and transferring it to your child, you only have to save $250 a month.

For a lot of people, $917 a month is either impossible or seriously challenging, while $250 a month is well within reason. That’s the difference between starting now and starting later.

Start Saving for College as Early as Possible (63/365)

Obviously, this same phenomenon works for any long-term goal you’re saving for. The longer you devote to saving, the less you have to save out of your own pocket overall (because interest is doing more of the work for you) and the less you have to save per month as well. A long-term approach turns something that seems impossible into something that seems quite doable.

The question really isn’t whether or not you should start saving right now. You should. The only real question is what your college savings goal is.

For example, if you intend to only save enough for a few semesters of textbooks – say, $2,000 – you’re still better off starting your savings at birth than waiting until the child is 18. At age 18, you’ll have to come up with the $2,000 out of pocket. If you start saving when the child is a newborn, you only need to save $5.50 a month.

In that $5.50 a month example, you’re actually only saving $1,188 out of your own pocket. The other $812 comes to you in the form of interest, which is the real reward for saving over such a long period of time.

The sooner you start saving for any goal, the more time you give for interest and growth on your investment to help you.

If you have children, right now is the time to start saving for their future education, even if it’s just $5 a month. Put it in a savings account for starters, but eventually you should look into a 529 college savings plan for your child.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. Images courtesy of Brittany Lynne Photography, the proprietor of which is my “photography intern” for this project.

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  1. Em says:

    Or you could save roughly half of that and encourage your children to spend the first 2 years at a community college and then transfer to a 4 year college for the last 2 years. This saves tons of money!

  2. Johanna says:

    I am not sure I would count on community colleges being an affordable option 18 years from now. Community colleges are only as cheap as they are because they’re subsidized. States have been steadily slashing funding for public 4-year colleges and universities. How long until community colleges really feel the pain as well?

  3. Kai says:

    They’ll probably go up too, but I’d have to imagine will still be similarly cheaper, even when the absolute costs of everything are higher.

  4. Katie says:

    I think community college is a great option, but, for kids who are prepared to really get the most out of a four year college, there are also drawbacks, such as two fewer years to develop relationships with the professors in their programs (who can be mentors). I hope starting at a four year college doesn’t become a luxury only the privileged few can afford, for all it looks like its going that way; there really are a lot of benefits to it for a lot of people, and community college isn’t a perfect substitute for everyone.

    I hate to say it, but wouldn’t a picture of, like, a college have made more sense here than one of a $10 bill? Isn’t Brittney a student at one who would thus have easy access?

  5. GayleRN says:

    Once again advice without running ALL of the numbers. For example, 3 times 250 equals 750 which for me is one quarter of my take home pay at the present time. 20 years ago it was half of my take home pay. I don’t know anyone who can afford to put away that percentage of pay and still pay today’s bills. Of course this would explain why Trent is not planning on paying for his children to go to college wouldn’t it? Oh, and I did have 3 sons to get through college, so these are my numbers.

    So if I am putting away a quarter of my take home to pay for 12 years of college (if I’m lucky) , how much should I put away to pay for 20 or 30 years of retirement?

    Let’s get real. Look at the big picture.

  6. Laundry Lady says:

    Sounds ideal if you have that much money every month to set aside specifically for your children’s education. We are barely saving for retirement and trying to pay off my husband’s student loans. They were first taken out when he was 26 and he is now 33. According to most of the savings calculators based on current financial wisdom we can expect to retire in our eighties and save almost nothing for our children to go to college. But then again, I think a lot will have changed about college 18 years from now. Obviously the earlier you start saving for any goal, be it retirement, education, home ownership etc. But that isn’t possible for everyone and doesn’t always preclude being able to do those things in the future.

  7. Steve says:

    These pictures are terrible. End the experiment. The photographer is not gaining exposure, she is just embarrassing herself. There’s got to be better things to take pictures of than paper money, sad-looking locals, and brochures.

  8. Kai says:

    Do you really build many relationships with professors in the first two years of school while you take massive 300-person lectures?
    I’d think you don’t really develop those until your later two years in smaller, more advanced classes anyways.

    Anyone can afford four year college that is vocational training. In other words, nurses just need to learn how to be nurses – they should do it at an inexpensive school, and they will be able to pay for it by working or low loans. Engineers and Geophysicists can count on making good money to pay back any loans they take out, but again, gain little benefit from a more expensive school. When you get a degree with serious wage-raising value, you do fine.

    What everyone *can’t* afford is a four-year liberal arts degree. Back in the mysteriously wonderful ‘old days’, college was about expanding your mind, regardless of what it might do for your future career, and valuable just for that. But what people keep forgetting is that back in those days, the only people who went to college were those rich enough that their families could afford to support them as they loafed around for four years expanding their mind.
    The situation is the same. College now includes vocational training, and if you’re working through it or especially taking out loans to afford it, you better be in something that is actually going to give you a good return on your money. You *can* spend four years at an expensive college just to learn things for their own sake, but you’d better have the money to do that. People who finance liberal arts degrees and then complain about it are demonstrating their own stupidity.

  9. Elysian says:

    I struggle with the idea of footing the bill for my (yet to be conceived) child’s education. My parents couldn’t afford to send me to college, and didn’t save to do so. Still, I went to a good private school on a large scholarship (making my tuition comparable to a state school) and worked my way through. Yes, I still have loan debt, but it is a manageable amount. And my parents paid $0 of my education.

    While I would really love to help my future child(ren) out with college, I just can’t see myself as a young parent having an extra $250 a month to set aside. I also think there’s a benefit in giving the child some of their own responsibility for their education. They are adults when they go off to college, after all. I know that personally my education was much more valuable to me because I paid for it myself. And I’m sure that as a parent I’m much more valuable to my child with a well-funded retirement fund. I think that letting your adult child pay for college themselves, should they choose to go, is an option that Trent passes off too quickly here.

  10. Katie says:

    Do you really build many relationships with professors in the first two years of school while you take massive 300-person lectures?

    But not every school has massive 300 person lectures in the first two years.

    I agree that a liberal arts education has traditionally been a luxury. I would prefer that, as a society, we work towards not making it a luxury good that only the rich can afford. As individuals, we can’t ignore the reality of the world, no, but I still hope that I can give my children the option, and want to work towards that with both how I structure my own finances and with what policies I support.

  11. Johanna says:

    @Elysian: There is a lot of middle ground between footing the entire bill for your child’s education and paying nothing at all. If current trends continue, college is going to be a lot more expensive for your future child than it was for you. I’ll bet that he or she will appreciate whatever help you’re able to provide.

    And large scholarships are great (I had one myself) but not everyone can count on getting one.

  12. Johanna says:

    @Kai: On top of what Katie said, a motivated student can build relationships with professors even if she’s taking nothing but 300-person lecture classes. Even professors of 300-person lecture classes have office hours, for example.

  13. Kai says:

    I still doubt whether a really strong relationship is built between a professor and one of a pile of students in some office hours. I certainly believe it *can* be done, but I think that if you spend only your third and fourth year at your graduating school, you’re not going to lose out that much on opportunities, if that’s when the majority develop anyways.

    I absolutely want a liberal arts education to be a luxury good that can be afforded by only the rich or the sufficiently apt who can get scholarships. As a society, I have no desire to spend our tax money on funding a four-year party. The students who are going to really get something out of it can get scholarships, or work hard enough to fund it themselves. But we fund their basic education. College is not a right, and for a large number of people, it’s not even of value. If you want your child to be able to spend four years on a degree with little financial benefit, you fund it – rather than expecting society to pick up the tab.

    I’ve seen a number of students fool around on daddy’s dollar. I think it’s awesome for parents to contribute to their child’s schooling, but I think it’s also good for students to be responsible for some of it themselves. I think there’s a lot of value in partially funding a child’s schooling.

  14. Katie says:

    Your problem is you think a liberal arts education = a four year party. You’re incorrect. And to the extent you’re correct, that’s a problem with individual schools, not the concept.

  15. Laundry Lady says:

    My mother got a liberal arts education back in the early seventies. She came from a working class family and her parents had saved nothing in advance for her to attend college, but did help her as much as they could, paying as they went, while she worked hard, earned scholarships and took out some student loans (mind you, back then the rate was something like 1 or 2%). She has never regretted this decision and to this day is one of the most educated and well rounded people I’ve ever known. I agree that today’s liberal arts education is not what it once was, but it can still have a great potential to make you a well educated person, if you are willing to put the work in. No one will force a student to become educated at college, that has to be a choice.

  16. Ellen K. says:

    Trent’s advice to save anything, even if $5/month, would have seemed more genuinely encouraging if stated in the beginning of the article rather than the very end. I don’t know many parents of one child, let alone multiple children, who can afford to put “only” $271/month into each college savings account and still save for an adequate retirement.

  17. Kai says:

    I think that a fully-funded liberal arts education has a tendency to become a four-year party. The students that truly make value out of it can put the work into paying for it whether through scholarships, grants, or work, or will be able to take out student loans and get a job to pay them back later.
    I don’t support society paying for vocational college degrees either – there’s just not as much concern because they usually pay for themselves, so even loan-funding isn’t too problematic.
    I’m not saying that all liberal arts degrees *are* four-year parties. Merely that they often can be, and I’m not willing to put my tax dollars towards that.

  18. Katie says:

    Kai, where on Earth did your tax dollars come into this? We’re talking about parents choosing to save for it. Do you think no universities should receive any state or federal funding? Because if so, I’m glad I don’t live in a society run by you.

  19. Kai says:

    “#4 Katie @ 7:07 am March 5th, 2012
    I hope starting at a four year college doesn’t become a luxury only the privileged few can afford…”

    My original comment was that a four-year degree that does not offer direct salary benefits has always been, is, and should remain a luxury good that only the privileged few can afford. I mentioned that skilled and motivated students can get scholarships and grants, or may find it worthwhile to take out loans (and manage to repay them) – the only other way to make it something that non-priveleged few can afford is by subsidizing it further through taxes. I assumed you supported that given your comment. It is certainly up to an individual parent if they want to fund four years of ‘mind expanding’ luxury schooling.

    I support some government funding of post-secondary schools, but only a bare minimum for everything, and then I believe money should be allocated primarily towards programs that will graduate trained professionals needed in our society. I don’t believe my or anyone else’s tax dollars should be funding degrees in philosophy, women’s studies, or the like. I absolutely believe that the ability to concentrate on such subjects should belong only to those who can fund it themselves.

    But then, I’m not all that big a believer in university in the first place. I think a student with the capabilities to do well in university also has the capabilities to learn much of the subject matter without the university.

  20. getagrip says:

    I started with $20 a paycheck (paid every two weeks) per child when they were born. I raised that by $5 if I got a promotion or COL increase, or if neither happened that year, I either raised it anyway it or it didn’t move. My goal was never to fully fund a four year education at a state or private school. It was to help and give options because:

    1. You don’t know that your child will go to college at all. They may choose to work right away, go into the trades, culinary school, etc. My kids were highly encouraged to go to either college or additional training in something post high school to get ahead in whatever they chose to do, and if they didn’t or didn’t need all the money, the money or what was left over was mine, all mine, and I really could use a new car.

    2. I knew early on there was no realistic way I was going to save the estimated $100K per kid for four years as estimated for college at the time I started saving (what is it now, $250K?). So I always figured they would need to get involved in what they decided they would be doing.

    As they got older and I looked at the money, I made them a promise. I would provide two years at a community college and two years at a state school and it would be on me. Anything else costing more, was on them. It was expected they would work summers and part time at school if they wanted spending money and to help with costs. I figured with what I was saving and earning, that was doable. So far two have opted for loans and four years away at state schools. (or as I put it to them, they are going to be paying back a new car loan for something they will never drive or get practical use out of, which is at least better than graduating with a mortgage for something you’ll never live in :)

    So in general, my feeling is if you start with a little bit, add to it over time, you’ll end up with something to help them with (even just the $20 a pay for 18 years is about $10K). Even if all you can offer is one year of community college, a car and gas money to get there and back, or even just rent free living, that in my mind is better than nothing. We all want our children to get ahead and want to help them, but we also have to be realistic about it. If you honestly can’t afford it, don’t. Plan what you can realistically do and don’t make promises you can’t keep.

  21. Golfing Girl says:

    I get the point, but I would have made a disclaimer that this should only be done if you are already saving for your own retirement. Children’s college funds should not trump that.

  22. Ruby Leigh says:

    Trent, how would you advise someone who does not have $250/ month to save? I honestly don’t think that is a reality for most people.

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