College is an incredibly expensive undertaking. According to a recent College Board report, the average cost for attending an in-state college (room, board, and tuition) came in at a whopping $24,610 for the 2016–2017 academic year, and private schools averaged nearly $50,000! Add in the fact that college costs historically double ever 10 to 12 years, and it’s easy to feel overwhelmed when it comes to saving for college.
If you’re a parent, then there’s a good chance that you want to be able to help your children pay for college (especially if you had to deal with crippling student loan debt yourself!). If you are in the position to start saving for your child’s college education, great! But when exactly should you start?
The sections below will help you figure out when you can and should begin saving and investing for college for your kids.
Worry about yourself first
This might seem counterintuitive, especially if you’re a parent who is used to putting your child first in everything that you do. But it’s an important thing to note: Before you begin saving for your child’s college education, you need to make sure that you yourself are financially secure.
This means two things. First, it means that you should have three to six months’ worth of expenses saved in an emergency fund so that, when an emergency inevitably strikes, you are able to cover the expenses without worry. There’s no point in saving for college if, when you encounter an emergency you need to dip into the college savings, you know? (Plus, dipping into college savings will cost you in fees and taxes.)
Once you’re secure with emergency savings, you need to make sure that you are saving and investing for retirement. While your kids have access to student loans, you don’t have access to loans for retirement; if you don’t have enough saved when the time comes, you’re out of luck. And if you ultimately can’t afford to support yourself in retirement, you risk becoming a burden to your children later in life. Long story short: Make sure you’re saving adequately for retirement before you even think about saving for college.
All set? Then begin saving for college as soon as possible
Once you are sure that you are squared away with adequate emergency savings and retirement funds, you can begin saving for your child’s college expenses. The sooner you begin saving and investing the better: By starting earlier, you give your money more time to grow, which ultimately means that your kids will have more money for tuition when they graduate from high school.
There is honestly no magic secret to investing timelines when it comes for college. Just make sure that you’re taken care of, and then start as soon as possible.
Do I need to wait until I have kids to start saving for college?
Great question! The answer is a loud, resounding, “No!”
You don’t need to already have kids to begin saving for college. If you know that kids are in your future, and you are already squared away with your own emergency and retirement savings, then by all means feel free to open a 529 college savings fund for your future kids.
Technically, you’ll open the account in your own name and with your own Social Security Number. Then, once you have children you can move the account over to their name/SSN (or split it between multiple children).
Why would you do this? Well, just like with any other kind of investments, the earlier you begin investing, the more time your money has to grow. If you know that you want to start having kids five years down the line and can start saving for their college expenses now, you give yourself five extra years of investment growth compared to waiting until they are actually born. And those extra five years can have a big impact on how much money your kids ultimately have for college. If you can swing it, start while your future children are just a twinkle in your eye!
If you know for sure that you are going to be having children, you can also plan your life around that fact by moving to a state that has some kind of free college tuition program. A number of states already do, and a bunch of others have programs in the works! Each state has different eligibility requirements in terms of how long a recipient of funds must be a resident, but most require just one year, while one state requires three years of residence.
The Bottom Line
Even though you might want to put your kids first in everything that you do, it’s really important to make sure that you are squared away with your own emergency fund and retirement savings before you even consider saving for your kids’ college education. Once you are financially secure, you should begin saving for college as soon as possible.