Parents really want college for their children – and they firmly believe they can help them reach it. That’s an important, positive finding of the OppenheimerFunds poll on the college dream. Over the years, in my research and reporting on how people manage their critical money-and-life issues, I’ve seen time and again that commitment and confidence are absolute must-haves for reaching any cherished goal.
But dedication to your goal is just part of the recipe. Particularly when it comes to saving for college, how you plan to get there is equally important. And that’s what my columns for “Keeping College Within Reach” will be all about. We’ll take a close look at how to translate your college dream into practical steps for saving and investing, best techniques and tools, and ways to fine-tune your plan as college draws near.
College is a goal close to my own heart – and one that I’m working toward myself, right now. My father and mother were both educators, and encouraged a love and appreciation of education from day one. They gave me the gift of a college education, even though it wasn’t easy for them financially. And so higher education is one of my deepest hopes for my own children – teenagers fast approaching their own college years.
Getting our kids to college is a dream that you and I will be working on together. So let’s start . . .
It’s clear from the OppenheimerFunds poll – and probably from your own experience – that college saving remains a huge challenge for many parents, even those with all good intentions.
I’ve learned that the best way to plan for a really big, long-term goal -- college, your own home, a secure retirement, you name it – is to break it down into smaller goals, or “benchmarks,” to hit over time. Applying this principle to the college savings process is critical.
First, take a look at how you’re saving for college. Is it hit or miss – something you put a few dollars toward when you think of it? If so, you need a strategy for regularly scheduled saving -- because an ongoing and realistic saving target is one of the most important “benchmarks” you can have for your college planning.
Academic research has shown that a savings plan yields much better results when your savings target is truly realistic – and therefore readily achievable – for you. Illustrating this principle, researchers at Rice University and Old Dominion University found that Americans are better at saving money when they set a saving target for the near future – like the next month – rather than for the more distant future.
In one study they conducted, people who planned their saving month-to-month and those who planned for the coming year each estimated they would save about the same amount – but the month-to-month savers actually wound up saving much more.
One thing I believe is important to acknowledge here – is that the vast majority of parents will not be able to save the entire cost of a college education ahead of time. We have competing priorities: Our own retirements. Our older parents. But we would like to save something. The questions for you are: What is your something? How much are you aiming for?
Then, knowing that, if you want to make your savings plan “real,” what seems to work best is taking your big savings target for the far-off future and “chunking it down” to smaller targets to meet at multiple points along the way.
Here are the steps:
- Cut some costs. You can only save what you don’t spend. Scrutinize every bit of your spending. Focus on the discretionary, like dining out, vacation trips, and leisure time activities. But don’t overlook the “essentials” too, like monthly food and clothing expenditures. What’s truly a necessity – and what can you cut?
- Define your target. Use your cost-cutting exercise to set a short-term savings objective that you know you can meet. It could be $100 a month, $50 a month, $10 a week, even a dollar a day – it’s up to you. Make no mistake – anything helps, and daily, weekly or monthly savings can really build up.
- Put your savings to work. Be sure to have your new savings automatically swept each month into a dedicated saving or investment account, where they’ll grow over time. I’ve been doing this for about five years now and I’m always surprised and pleased to see how my balances have grown (even in down markets, my additional contributions diffuse the bad news.)
As I said, chances are – like most people – you won’t be able to meet the entire cost of college by yourself. That’s okay, as long as you diligently investigate other funding sources, like responsible borrowing and financial aid – and commit yourself to a realistic, ongoing savings target.
To get your kids to college, you need to keep your eyes on the prize -- and make a habit of saving. A savings plan that’s “real” will help.