I write about personal finance, so I know how important it is to save money for your children’s college education. (As long as you’re not doing it to the detriment of your retirement account, of course.) I talk to financial planners several times a week, and I know that the key is to start early. START NOW. I get it. I do.
So I’ve been a little stressed out that we haven’t managed to be more aggressive about college savings for our two girls. But we live in New York City, and frankly, it’s expensive. It’s beyond expensive. It’s nuts. And the amount of money we spend on basic fixed expenses—rent, daycare—is outrageous.
And then it hit us. We spend a lot of money on daycare. We spend more money on daycare than we do on rent. (Those of you familiar with NYC rent numbers will understand that our monthly bill is not insignificant.)
But daycare is not forever. At some point, these girls will enter school. Public school, if we can help it, which means we’ll no longer be paying for daycare. Which means we’ll have THOUSANDS to funnel into their college savings funds each year. If we save even half of what we’re spending now, we’ll have a sizable college nest egg by the time each girl is ready for collegiate life.
But could it be that easy? Is it just a matter of redirecting the money we’re already spending? And if it’s that easy, why doesn’t everyone (who pays childcare expenses) do this? And is it okay that this savings strategy won’t kick in until the girls are 5 years old?
I asked a planner friend of mine to weigh in.
“That sounds like a great plan,” says Ted Toal, a financial planner in Annapolis. Most people, he says, are more likely to dream about how they’re going to spend their newly freed-up money, not save it. But this strategy can work with anything. “Let’s say you have a car payment of $500 a month and you pay the car off,” Toal says. “Don’t spend that money. Start saving it. Put it into a savings account. Put it into an investment. Up your 401(k) contribution.”
The takeaway? This could work for us. And I’m no longer stressed about saving for college, because the money is already in our budget. And when the time comes, we’ll just shift those payments from “daycare” to “529 plans”—with maybe a little bit earmarked for “weddings.” Because we do have two girls, after all.
What’s your college savings strategy?
(Dollar bill yo-yo from felipejcontreras on Flickr.)