College tuition is one area that is growing much faster than inflation. Within the next 20 years, college tuition is expected to double.
Spending $200,000 for public university tuition or $500,000 for private university tuition will be the norm by the year 2037. If you don't properly save for college, your child may graduate with soul-crushing debt, potentially inhibiting him or her to pursue an ideal career.
That said, there's also a school of thought that believes college tuition will decline in value because the value of a college education is declining in value. When you can learn everything free online, why bother spending so much time and money on college in the future?
There are plenty of college graduates today who end up living at home with their parents due to student loan debt. Many are unable to move to places like San Francisco or New York City due to the high cost of living. Being able to afford a college education is incredibly important for helping our children get ahead.
Personal Capital, a leading digital wealth manager, and the creator of the best free financial tools on the web to manage your wealth launched a new Education Planner tool on their web dashboard.
Their new planning features take the guesswork out of financial decisions by allowing you to create multiple income or spending scenarios. You can immediately see the impact of hypothetical income events like inheritance, the sale of a home, or going back to work after retirement.
Similarly, you can input expenses like travel, a child’s wedding, home renovation, or making a charitable donation. Maybe you or a spouse want to take a year off or stop working entirely. What impact would this have on when you can retire, or how much you save?
Their new scenario and comparison tools allow you to plan for multiple potential outcomes. Best of all, you can save different scenarios and compare the impact of various decisions versus your current financial plan.
This feature works together with our newly launched ‘Education Planning’ tool, which helps you understand and compare the costs of a specific college or overall in-state vs out-of-state college costs, as well as determine your annual savings needs while you track your progress.
Forty percent of college students take a fifth year to graduate, and you can model what impact that would have on your annual spending. You can also see how hypothetical changes to education goals impact your overall portfolio and retirement readiness.
Related: Everything To Know About The 529 Plan
How The Personal Capital Education Planner Works
Step 1:
Sign in to your Personal Capital account and select ‘Retirement Planner’ under the ‘Planning’ tab in the header menu.
Step 2:
In the Retirement Planner, select the ‘+’ next to Spending Goals, and select the ‘Education’ icon.
Step 3:
Create a ‘New Education Goal’. Select or add your student, their birth year and their education type – private school (pre-college) or higher education.
Step 4:
Add in any and all savings toward this goal by linking any current associated accounts or you can manually enter the amount. However, we encourage you to link any existing accounts so you can designate all or a portion of those given accounts toward an education goal. This allows you to monitor your progress and contributions and helps you keep on track for hitting your goals.
Our Average costs calculator – which includes tuition, room and board, and books – will help you determine an appropriate amount to save.
Personal Capital's planner accounts for inflation by deflating future returns on your college savings to today’s dollars for an easier comparison with today’s college costs, to help you most accurately compare.
Step 5:
The planner helps you calculate how much you need to save per month or per year, from now to the time your student starts college. Personal Capital recommends saving for 70% of the total costs.
Step 6:
Select ‘Done’ and you now have your final education analysis. You can see your projections and edit contributions, select specific schools to see how your savings will net out, and see your “Fund-it-all” amount and your projected tax savings from a 529 plan.
Step 7:
You can now complete your final analysis. For example, you can save it as a new scenario such as, “Katie goes to Stanford” under ‘Retirement Planner’ and see how it affects your retirement readiness and your overall financial plan. This is how you can compare all different types of scenarios (home-buying, inheritance, etc) and see how it impacts your plan.
Save Aggressively For Your Child's Education
Don't leave financial planning up to chance. The people who get ahead are those who create a plan and follow their plan over the long term. You don't want to wake up 10, 20, 30 years from now like so many people and wonder where all your money went.
The decision to go to public school or private school is a personal one that depends on your child's needs and your financial situation. The irony about college is that education is now free thanks to the internet.
You can literally learn everything you need to know without going to college. There are even great YouTube tutorial videos, free online courses, and personal finance sites like this one.
Despite all the free knowledge, college will likely continue to be an important criteria for getting ahead. A Master's degree might soon be the new Bachelors degree. I personally recommend everyone first consider public university first. If you can get grants that will allow a private education to be equal or cheaper than a public university education, then certainly consider the private school route, especially if the school is ranked higher.
Just know there are plenty of people who go to schools like Harvard, and still end up doing the same old job other people who went to less prestigious schools do. The more expensive and prestigious the university, the higher the expectations of you to do something amazing with your life. If you end up doing what everybody else is doing, then you will likely feel like a disappointment.
The best combination is to get an affordable college degree from a well ranked state school like The College of William & Mary or UC Berkeley, and then supplement your knowledge with online learning. Employers nowadays want their employees to not only be well-rounded individuals, but also have specific skills that can be used immediately on the job to add value.
Best of luck! And at the very least, leverage free tools on the internet like the ones from Personal Capital to help manage and grow your net worth. They have the best financial tools on the web today and I've used them since 2012.
Related post: 5 Money Lessons For New College Students
About the Author: Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate.
FinancialSamurai.com was started in 2009 and is one of the most trusted personal finance sites today with over 1.5 million organic pageviews a month. Financial Samurai has been featured in top publications such as the LA Times, The Chicago Tribune, Bloomberg and The Wall Street Journal.