How to Save for College Without Sacrificing Your Retirement

As we prepare for the arrival of our son I’m thinking about his college education and how we’re going to pay for it. I know, that’s 18 years out. But with the soaring cost of education, if we don’t prepare and start saving now, we may not be in a great position to help much once he approaches college age. And the last thing I want to do is send him off into the world with a mountain of debt, so I plan to set up a 529 Savings Plan right away.

(Canadians: While 529 plans are only available in the US, there is something similar called an RESP, or Registered Education Savings Plan. An RESP is a tax-free savings account that allows contributions to be made by anyone, anytime, until the child begins post-secondary.)

But the numbers are daunting. Using the SavingforCollege.com calculator I looked at two scenarios: In-State Public and Out-of-State Public Universities.

In-State Public (currently California)

Cost per year: $30,000 (included tuition, fees, room and board)

Inflation rate: 6%

Annualized Return: 8%

Forecasted Costs: $375,000

Monthly Contributions Needed to Meet Goal: $686 ($8232/year)

Out-of-State Public

Cost per year: $40,000 (included tuition, fees, room and board)

Inflation rate: 6%

Annualized Return: 8%

Forecasted Costs: $500,000

Monthly Contributions Needed to Meet Goal: $915 ($10,980/year)

Gah! On the low end I need to put away nearly $700 a month! That’s a pretty large sum considering our priorities are paying off debt, saving for and subsequently paying off a house and contributing to our retirement accounts…all of which are part of our retirement plan. Saving for college is a priority but our retirement takes precedence as it is even more important to us that we’re able to live independently and not be a burden to our family through our retirement years.

So how do we do both?

1. Check your Latte Factor®: Your Latte Factor is the amount of money you spend on a daily basis on non-essentials such as bottled water, lattes, fast-food or cigarettes that can be redirected to areas such as paying off debt, saving for retirement or college. For example, if you spend $5 a day at Starbucks, that’s $150 a month you could save by making your coffee at home. If you also eat out for lunch 5x a week at $6/meal, that’s another $120 a month you can save by bringing your lunch.

Checking your Latte Factor is probably the quickest way to find room in your budget. We went through this exercise a couple years ago and have squashed our Latte Factor. The only non-essentials in our budget ($100 for eating out and a Netflix subscription) are there deliberately to avoid a frugal meltdown.

Projected yearly savings: $0

2. Lower your expenses: This is an area that I am constantly looking at.

Insurance: Every six months I look at our insurance policies and shop around for better prices. Very often this will save us $150-$200 over the policy period.

Food: This is the one area of our budget where I think we have significant room for improvement. I am very diligent about planning ahead and finding the best prices, but I have yet to incorporate couponing into my routine. I’m also planning a huge garden this year and plan to freeze and can my ‘bountiful harvest’. Between these two things I think I can cut our food costs 20-30%.

Projected yearly savings: $1500

3. Earn side income

Surveys: Earlier this month I wrote about making money from paid online surveys. It’s still too early for me to determine if this is viable long-term, but currently I estimate I can bring in $100 a month from taking surveys.

I have other projects in various stages of development that may or may not generate income this year.

• Blogging: Right now my focus is quality content and growing my readership. I realistically don’t expect to start generating revenue until next year
• Internet-based business: I’m in the brainstorming phase of outlining a potential business. But with a baby due in May, I really doubt I’ll make much progress in this area until later in the year.
• Selling baked goods: This is a little off the wall for me but we have three large apple trees and a pear tree on our property that produce way more fruit than we can eat, freeze or giveaway. I hate to see any of it go to waste, and I make an awesome Blackberry Apple Sourcream Pie, so I’m looking into selling baked goods at the local Farmer’s Market over the summer/fall.

Projected yearly savings (Surveys only): $1200

4. Enlist your family

We have two young nephews. Whenever holidays and birthdays come up I’m always amazed at how much “stuff” they get. The room is littered with toys that will get very little use and clutter up their parents house. About two years ago we decided to become the “boring” relatives and instead of getting them more toys that will eventually end up in a landfill, we’ll give them money to be put into their savings accounts.

And now that we’re expecting our first child I think about this a lot. For many reasons (that I’ll expand upon in a later post) I want to avoid all the “stuff” that we’d inevitably receive. So we decided to set up a College 529 Savings Plan and ask our immediate family to, instead of buying toys or other gifts, make a contribution to our little guy’s college fund. Once we explain how important it is for us to fund our son’s education, I think they’ll be fully supportive.

Projected yearly savings: $1500-$2500

If I can implement all of these things this year I estimate (on the low-end) we can save $4200 a year. That’s a little over half of what we need to save for a 4-year in-state public university. That’s not a bad start and we won’t impact our debt reduction plan or our retirement savings.

I’d like to hear from you. Have you found creative ways to save for your child’s education?

Also, check out these two fantastic articles from fellow Yakezie members.

The Crap We Buy Our Kids Equates to $100,000 at 21 Years Old @ Darwin’s Finance

How To Get An Expensive College Education for 80% Less @ Wealth Pilgrim

Tagged as: Kids and Money, Money Management, Retirement