Remember oxygen masks on airplanes.
Contributing or paying for your kids’ college education is a wonderful and noble goal, BUT you need to make sure your retirement is secure before worrying about paying for college.
You may have heard us use the analogy: paying for your children’s education is like putting on an oxygen mask on an airplane; make sure yours is secured first!
Your children have decades of compounding growth ahead of them, and will likely have extra capacity to pay that debt off later down the road. That’s not to mention scholarships and other financial aid they can receive. Make sure your financial future is on solid footing before worrying about your children. After all, your kids do not want to be your retirement plan.
We like to use the College Boards National Averages to get a figure on long-term education planning. Ultimately, a good funding goal to have is covering 50-75% of education costs due to the likelihood of additional resources from financial aid, scholarships, and student loans if needed. You may want to analyze expected future costs as a whole and see what annual funding is adequate. As a reminder, savings for education expenses would not be included in your overall savings rate for retirement and is considered Step 8 (pre-payment of future expenses) in the Financial Order of Operations (FOO).
Check out the videos below to see an in-depth explanation on the best way to save and pay for college:
Video: The Best Way To Save For College