Saving for college: How much is enough?

Whether your child is four months or 14 years old, it’s never too early or late to start saving for college. What’s less certain is how much you should save. The total often depends on your income, number of children, when and where they go to college, and how much of their education you want to cover. Here are some guidelines to help you set a goal and stay on track to meet it.

The first step is to estimate how much college will cost when your child is ready to attend. Higher education sticker shock is real, but not always based in reality, since most families pay significantly less than the published “sticker price.” Instead, they pay the net cost, which is the sticker price minus grants and scholarships—typically 30-50% less than the listed price. Check out the net cost calculator on any college website to get a personalized estimate of your family’s net price for that institution.

Once you have your estimated net price for a few colleges, use a college savings calculator to predict how much the cost will be when your child is ready to attend. For example, if your child is two, you’ll want to know how much college will cost in 16 years. If your estimated net cost at a public four-year school is $20,000 per year—$80,000 for four years in today’s dollars—the college savings calculator would tell you it will likely be around $44,215 per year or $176,860 for four years when your child is 18. That’s assuming the average 4.63% annual college tuition inflation rate over the past 10 years.

After you’ve calculated future college costs, decide how much of your child’s education you want to cover. Some families are determined to sock away the full amount. Others feel it’s their child’s responsibility to earn the money and take out loans for the rest. Most families aim to break it down into thirds:

• Save a third of the total cost over many years
• Pay with income they’re making at the time a third
• Use one or more loan options, gifts and student earnings for a third

Encourage your children to put 10% of their cash gifts and allowance into a college savings account. When they have a paying job, they can begin a lifetime practice of putting 20% of their earnings into savings.

After you’ve determined the percentage of the total you’re going to cover, use the college savings calculator to see how much you need to save each month to meet your goal. Before committing to that amount, analyze your budget or create a new one to make sure you can comfortably cover your bills, living expenses, and retirement account contributions—which should be your top priority

If you’re not able to meet the recommended monthly savings, don’t worry. Our budget tools can help you figure out how much you can afford to put away. Start there. Every little bit counts, even $25 a month. Once you start contributing, you’ll get used to having that much less to spend, especially if you set up automatic deductions—out of sight, out of mind.

Over time, look for opportunities to increase the monthly amount. For example, when you get a pay raise or your child ages out of bottles, diapers, and daycare, shift the savings to your college fund. Also think about adding some of their birthday and holiday money or tax refunds and bonuses. Every dollar you save now is one less you may have to borrow later.

The best way to save for college is to start early—but keep it realistic. Putting money away for your children’s education is important, but so is your current and future quality of life. Be sure you’re prioritizing your retirement nest egg and emergency funds first. Then keep looking for ways to find or earn extra cash to build your college savings. You’ll thank yourself later—and hopefully your kids will too.