In May this year, I graduated from university for 10 years. Reflecting on that period of my life, I could do a lot earlier, which would prepare me for financial success in my 20s. For many parents or self-funded students, saving hardships for college education is a difficult time. As tuition fees rise, figuring out how much college saves can be overwhelming. There are some things you can do to pinpoint your “digits”.
1. Understand the actual cost of a university
When considering how much savings are for college, most parents underestimate the actual cost. The average annual cost of a four-year public university (including tuition, rooms and board) is now over $25,000, which is more than twice as many as private universities. Today’s expenses will appear moderate as the annual increase is about 5% compared to the parents faced by young children. Planning a four-year degree may mean savings of $100,000 to $300,000 per child. Ignoring these rising costs can cause families to scramble to borrow money and you will pay for the rest of your life.
2. 1/3 Rule: A practical savings strategy
The 1/3 rule is a popular guideline for parents to know how much money they want to save for college. The strategy shows savings of one-third of the expected cost, covering students’ current income while at school, and funding the remaining third place through loans or financial aid. For a public university, this means saving about $50,000 to $50,000 in the 18-year-old. Breaking it down into monthly savings makes the goal difficult – $250 a month if you start early.
3.529 Plan: The Best Tools You don’t use enough tools
Plan 529 can change the game when deciding how much money you want to save for college. These tax-free savings accounts allow your funds to be tax-free if used for qualified education expenses. Many states offer additional tax benefits, which is effortless for most families. Assuming an annual rate of return of 6%, investments from birth or even investing $100 per month may grow to over $40,000 during college. Despite these benefits, less than 40% of households use 529 plans.
4. Shocking financial aid reality
Many parents believe financial aid will pay most of the costs, but the reality is often disappointing. Financial aid packages often include loans that can burden students for decades. Grants and scholarships usually cover only a small fraction of tuition fees, and eligibility depends largely on your income and assets. For middle-class families, despite the high tuition fees, this may mean that there are few grants. If you are a rising college student, it looks high for scholarships and grants, and it is a good idea to keep a low profile.
Start early and save intelligence
When it comes to how much college saves, the answer is shocking. Unfortunately, getting a college degree is more expensive than ever. Break down costs and identifying what you really can afford will make everything more manageable. I encourage you to start early, use the 529 program, and seek financial assistance. Every little step you want to prepare will pay off, trust me.
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