3 Things Wise Parents Do Before Saving for Their Child’s College Education

Don's Save for Kid's College

Have you ever broken up with someone?

Have you tried to break up with someone who didn’t want to be broken up with? No matter how hard you tried to guide the conversation—and the relationship—to a conclusion, the other person routed you back to the beginning. That’s how I felt when I interviewed Tim Higgins, author of “Pay for College Without Sacrificing Your Retirement: A Guide to Your Financial Future.”

I’m not saying that Tim needs to be dumped. He seems like a perfectly nice fellow. What I am saying is that Tim broke my heart. I wanted to talk 529 College Savings Plans, which we eventually did, but first Tim hit me with three things parents should do before they even think about college savings.

I was a little disappointed. Okay, I was very disappointed. But since I don’t want to spend my golden years reading “72 Ways to Prepare ALPO and Love It,” it makes sense to take a big picture view of college savings.

Here are three things you must do before you save a penny for kids’ college:

No. 1 Run a retirement analysis

“That’s going to give insight into whether we should be saving for college at all,” says Tim.

At this point, you’re probably thinking college savings is scary enough, now we have to talk about retirement, too. Don’t despair, prepare.

Get a basic picture of your retirement outlook with MSN’s Retirement Calculator. You’ll need to provide your income, annual savings, and other info. The results are only as accurate as you are. Fight the temptation to fudge on how much you save and don’t inflate your expected rate of return—put me down for 40%.

The calculator will estimate how long your savings will last in retirement. It will also suggest how much you should save to meet your retirement goals. If you’re satisfied with your retirement picture, you might be ready to start saving for college. If you’re not happy, or haven’t started saving for retirement, you might want to put college savings on the back burner for a while.

While we’re on the topic of retirement, don’t sleep on any matching programs offered by your employer.

“If your employer offers a matching contribution in your 401k or 403b, that’s the number one thing you should be doing,” says Tim. “That’s a 100% return. I don’t care about state universities or private universities. That topic is off the table until you save into that account.”

No. 2 Run a cash flow analysis

What is cash flow? Cash flow is the movement of money into and out of a business—in this case, the income and expenses of your household. A cash flow analysis will help you answer two questions:

  • Do I currently have extra money to save towards college?
  • Will I be able to pay tuition out of cash flow in the future?

To run a cash flow analysis, you’ll need your monthly income and expenses. The expenses should include everything from mortgage and car payments to entertainment and clothing costs.

Plug your numbers into a cash flow calculator like the one on Yahoo! Finance. The results may show that you have a positive cash flow, meaning there’s money left after expenses. That’s cash that could go into your child’s college fund. On the other hand, the cash flow calculator may show that your household finances are in the red.

No. 3 Take a sober look at your own debt

I talk to a lot of parents about saving for college. I often hear, “I can’t save for my child’s college education. I’m still paying back my own student loans.” That’s a generational curse if I’ve ever heard of one.

It’s wise to consider your own debt first. While it might be emotionally satisfying to invest in a college fund, it makes no sense to chase after 6% in a college savings account, while your own student loans and high-interest credit cards have you trapped.

Check out Dave Ramsey’s “7 Baby Steps” for debt help. I’m a Dave Ramsey fan, plus I think there’s a federal law that you can’t discuss debt without mentioning Dave. And I’m a law-abiding citizen.

There you have it folks, three things you should do before you start saving for college. Your retirement account and your tummy (sans the ALPO) will thank you.

Readers: What are your questions/thoughts about college savings and retirement? Ever had trouble breaking up with someone (yep, I’m being nosy)?

Tim Higgins is a certified college planning specialist who has appeared in SmartMoney Magazine and Entrepreneur Magazine, among others. Visit Tim’s website for more information on how to pay for college without sacrificing your retirement.

Just the facts, Jack: This is NOT a sponsored post. This post contains Amazon affiliate links.

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About Nicole Robinson

Nicole Robinson is a Dallas-based freelance writer who specializes in college planning, parenting, women’s lifestyle, education, and self-help. But she's always hungry to munch on new topics. In addition to writing for The BookWormMama blog, Nicole provides content, copywriting and proofreading services for various publications.

Comments

3 Things Wise Parents Do Before Saving for Their Child’s College Education — 22 Comments

  1. Luckily, the only debt I have is my mortgage, but I definitely need to do the other two things on the list before I start saving! The time will be here before I know it.

  2. I have extensive student loan debt and no retirement so I know that my priority right now, is to save for retirement and pay my debts off. Luckily, it’s just the mortgage and student loans, oh and the car, but no credit cards for us. Since we have four children, there is no way that we can pay for college. Three of the four are superior students and will need to apply for every scholarship and will need to work their way through. The kids are always welcome to live with us, attend a local university and pay only their tuition, books and fees.

    Every penny I earn myself goes into savings. I pretend I earn nothing.

    • Those student loans are more haunting than a ghost house. I’m glad to hear that you are dedicated to tackling your debt and building your retirement. You’re smart to aim for scholarships. And the kiddos don’t have to wait to apply. There are college scholarships for kids as young as kindergarten.

      Check out my ever growing scholarship page for young kids. If you hear of anymore, please let me know.
      http://bookwormmama.com/scholarships/

    • Thank you, Katy. Girl, I’m aiming for lobster and filet mignon in retirement. And some Cheetos and peanut butter crackers, too, but you get my point. Thanks for swinging by.

  3. This might not be super popular but neither my husband or I went to school with any savings from our parents – we both paid our ways through and are still paying my husbands off. I want to make sure we’re secure and debt free first, as well as have a good retirement plan, before we start worrying about college for the kids. We put money aside for them that they get for birthdays/etc and will make sure they save up when they start working, too.
    Rachel recently posted..How I Ripped My JeansMy Profile

    • Rachel, you guys are wise to take care of your own debt first. My philosophy: I plan to pay for part of my children’s college education. I don’t see anything wrong with my kids getting their “ethical hustle” on to pay for school. Meaning jobs, scholarships, entrepreneurship…

      Thanks for stopping in.

    • Thanks for stopping by, Trish. I’m not sure which 8% you’re referring to, but I will say that mapping a plan is always going to trump winging it when it comes to college and retirement (whether or not those returns are as fat as we’d like).

  4. Pingback: Let’s Debate: Should your kids decide whether or not you have a day job? | BookWormMama.com

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