Should You Be Saving for College?

By Julie Ford

Today I bring you the first article in a 4-part series on college savings. I know the numbers about the rise in college tuition is daunting, but you have lots of resources at your disposal to help you make the right choices. This college savings series is a great start. I’m going to teach you everything you need to know about the basics of college savings. To kick off the series this week, let's see if putting aside money for college makes sense for you right now, or if you should consider focusing on retirement savings instead.


Retirement versus College Savings

Saving for future college expenses is a great goal and priority. However, this should not come at the expense of building up an emergency savings fund or saving for your own retirement. Let me explain why. 

Prioritizing retirement might sound counterintuitive, but compare both seasons of life (child starting college vs. your retirement). What happens if you get all the way to retirement and you didn’t save enough, or 15 years into retirement you run out of money? Your options for increasing your income at that point are more limited, and the burden of that shortfall may land on your children. By comparison, if by the time your child begins college you don’t have enough saved, you have several manageable and appropriate options: financial aid, loans, delaying retirement, a nonworking spouse goes back to work, etc. 

The bottom line is that it’s easier to respond to shortfalls in your income or savings at a younger age. Also, if you end up taking out loans to fund college education, you can turn this into a great learning experience for your children - teaching them at a young age how to properly manage debt.


Student Loans

So, when is it okay to focus on college savings? I recommend you consider the following 5 questions before diving into (or continuing to contribute to) a college savings plan. 


Can you answer each question with a pretty solid yes?

  1. Do you have 3-6 months of essential living expenses set aside in a dedicated emergency savings account? 
  2. Do you pay your credit cards off in full each month?
  3. Are you making timely payments on other debts (e.g., your mortgage, car payments or your own college debt)? Are payments larger than the minimum required?
  4. Are you on track to max out your employer-sponsored retirement plans this year (e.g., 401k, 403b)?
  5. Are you on track to max out your Traditional or Roth IRA contributions this year?


Ok, Let's Be Realistic

I know that you have multiple goals for your money and that you’d like to make progress on more than one at a time. I understand because I feel the same way about my personal finances. If you can't say "yes" about the 5 goals above, but you decide to go ahead and work on college savings, that's ok. Just make sure you’re putting more money towards these other goals first. For example, don’t put $1,000 towards college savings but only $500 towards outstanding debt. Find a good balance.


Action Plan

This week, take the following 3 action steps:

  1. If you have a significant other, loop him or her in and answer the 5 questions above for your family. Decide whether you will focus only on emergency or retirement savings now, or if you will also save for college. 
  2. If you decide against college savings right now, make an appointment with yourself in your calendar a year from now to reconsider this decision.
  3. Talk to a professional if you want more hands on guidance or don't know where to start. Feel free to email me or find another fee-only financial planner.

Next up: Where should you keep your children's college savings? I’ll tell you what 2/3 of Americans don't know!