College is an important decision for many people, and the cost of college can be hard to determine. This tool will help you estimate how much you should save each year to send your child to school without taking out loans or going into debt.
In addition, this post discusses other ways that those with children can prepare financially for their eventual departure from home.
The Calculator for College Cost
This tool calculates the minimum amount of money that you should save each year or month so that your child can afford to go to college without taking out loans or going into debt.
The results will also show how much more you need to save if you would like to pay for some of their living expenses while they are in school (room and board).
The college savings goals are different for everyone, so you can use your own goal if you prefer.
Current Age of Child
The first thing you will need to do is enter your child’s age into the calculator. Most families feel that it is never too early to start saving for college. Still, it depends on how old your children are and what type of program they intend to enroll in (for example, whether they plan to attend a local community college or if they want to go straight to a four-year university).
Financial professionals typically recommend that you save a certain percentage of your income each year for college.
Initial Savings Goal
The next step is to enter how much you would like to have saved when your child heads off to college. If possible, try to save as much as you can each month, and don’t forget that the earlier you start, the better off you will be.
It is important to remember that if your child doesn’t want to go to college, all the money you have put aside can be used for other purposes.
Qualified higher-education expenses include room and board tuition, fees, books, supplies, and other related expenses, need to be incurred during each school year.
The college board has a list of items that they consider to be qualified expenses. This calculator does not include all possible costs, but you can add additional fees or subtract any amounts that you believe are incorrect if you find a discrepancy.
State Tax benefits
It is possible to get tax breaks for your college savings, so the calculator looks at these benefits’ impact on your results. For financial aid purposes, the government considers the assets that you hold in your child’s name to be their property.
Annual Rate of Return
The calculator asks you to enter your expected rate of return on college savings. For this tool, assume that you will earn a typical investment portfolio return based on historical averages. This number should factor in market fluctuations and inflation.
However, it would help if you remembered that your actual rate of return is likely to be different from what is displayed in the results. Scholarship funds, student loans, and other factors could reduce the amount that you need to save.
You can now choose how often you would like to make deposits for your child’s college fund. The more frequently you deposit money, the sooner your savings will grow and the less time you will have to wait to reach your goal.
The calculator automatically assumes annual contributions. If you would like to contribute monthly, quarterly, or twice per month instead, click on the button to choose a different option.
Additional Annual Deposits
The following section asks you whether you would like to make additional contributions each year. Of course, you may also receive some bonus or other unexpected income during the year, but this calculator does not take those figures into account (nor does it ask for your salary).
Many families find themselves in a better financial position later in the year and would like to contribute more money than they would at the beginning of the year.
The average costs are usually highest during the first and second semesters, so it may be worthwhile to contribute more during those times.
Costs This Year
The calculator now will ask you to choose a number for the costs of college this year. Unfortunately, we cannot forecast the exact amount, but you can use your best estimate of your child’s costs during the school year.
You can assume that this amount will remain static, or you can use your current expenses to estimate future costs.
You may find that though you have initially met your goal, additional costs for the school year will leave you short of money when it’s time to start making withdrawals from your account. Remember not to delay saving in case you need more money in the future.
Getting tax advice about college savings
Note that this calculator is not designed to provide tax advice. It is good practice for you to consult with your tax professional about your options when saving money for college, especially if you are using tax-advantaged accounts like Section 529 plans.
A college savings plan may be an excellent way to invest your money but remember that it will likely reduce the amount of financial aid available if you have a large account balance. You should weigh whether this option is right for you.