If you’re like most college graduates, student loan debt was a monkey you carried on your back for years, possibly decades—you may even still be carrying it around.
According to EducationData.org, our collective student loan debt is approaching 2 trillion dollars, with more than 43 million people carrying an average of $39,351 in debt each.
It’s hard to imagine wishing that kind of debt on your worst enemy—let alone your own children.
So when should you start saving for your kids’ college education so you can save them from the student loan monkey?
This may not be what you want to hear, but it’s the truth: the answer is today.
Financial experts agree, the best time to start saving is the day your kids are born. If you’re too late for that, don’t worry, you still have time—and you don’t have to build a complicated financial plan to get started.
Today, we’re going to show you how you can use Lasso, an upcoming financial planning app, to help build a financial plan that will get you on the right path to saving for your children’s college by the time they’re ready.
The Essential Questions to Answer When Building a Plan for Your Children’s College Savings
With Lasso, we will focus on the questions that are critical to help you understand whether or not you’re on track for your goals and what you might need to do to meet them. And we think that can be accomplished in five simple questions.
So when you build a plan for your children’s college tuition, all you need is five inputs.
Question One: How Much Do You Need to Save?
EducationData.org says the average cost of four years of college is:
- In-state public college: $103,456
- Out-of-state public college: $174,885
- Traditional private university: $215,796
Of course, you don’t have to cover all of that. Scholarships, your child’s contributions and other factors can bring down the amount you need to save. The average parent expects to pay 30% of their child’s college tuition, and thus aims to put away $57,981 by the time their child reaches college.
So let’s make that our goal.
Question Two: How Much Have You Already Saved?
The next question is how much you have already saved. If this question makes you feel like you have a rock in your stomach, don’t worry: you’re not alone. Considering that the average age of people who open a 529 college savings account is 35 and the average age of a new mother is 26, you’re in the same boat as most other people.
If you have $1, then that’s a great start.
Maybe that’s not the case. Maybe your parents gave you $1,000 to start a college savings fund when your kid was born. Maybe you are a super-saver and already have $10,000 earmarked for little Timmy’s Harvard tuition.
Just don’t let this question stress you out—even if the answer is nothing.
Question Three: How Long Till You Want to Reach Your Goal?
This question is really broken down into two parts, because a college education generally lasts for more than one year. Therefore, you want to know when you need to make your first payment and when you will make your last payment.
Years Until College
Maybe you have a newborn and your answer is 18 years. Maybe you have a middle-schooler and the answer is 5 years. Or maybe you don’t have any kids yet and the answer is 20 years.
Whatever your answer, the longer time horizon you can give yourself, the better here. It means more time to save and more time for your money to grow.
Years in College
A bachelor’s degree typically takes 4 years, but you could be saving for an associate’s degree (2 years), medical school (6+ years), a Ph.D. (who knows how long this one even takes) or whatever you want.
Question Four: How Much Can You Contribute to Your Savings Every Year?
Again returning to EducationData.org, the average parent saves $5,143 per year toward their child’s college education.
Now that’s not to say that you have to save that much every year. If you remember from earlier, the average parent saves $57,981 for their child’s education. If you have 18 years, you could save $3,221 per year and hit that number on the head.
And we haven’t even gotten to the part where you make your money work for you yet.
Question Five: Which Portfolio Would You Like to Start With?
How much risk are you comfortable with when it comes to money? In other words: Would you be okay with a greater risk of losing money if the potential for making money was high enough?
If so, you might want to go with a Higher Risk Portfolio here. If not, you may want to choose Medium or Lower Risk.
The beauty of Lasso is that it helps you see how including an investment portfolio in your plan could potentially help you get closer to your goals in a really simple way. There’s no need for extensive meetings with an advisor just to know what a plan could possibly look like. Just pick an option and you can see how your plan stacks up!
Once you have an idea of what portfolio might work best for you, that’s when you can work with an advisor to actually implement your choice and have your money start working for you.
But first, the fun part.
Now that you’ve gone through the five core questions, you should have an idea of where you stand. Are you on track for your goal or do you still have a ways to go?
Based on the answer, it’s time to refine your plan.
In Lasso, you can adjust your inputs and explore what would have the most impact down the road. For example, saving an additional $1k per month may have the most impact. Or a combination of actions like saving more or increasing investment risk may get you to better outcomes.
After you’re finished with your plan, you can start saving with a clear picture of how to go about it. And that’s not all—you can share your plan with a financial advisor to see how they would improve your plan for free!
And that’s it! By answering five quick, simple questions in just a couple minutes, you can kickstart your college savings starting now.