Have you ever had the thought, “If only I knew then what I know now”? Hindsight is 20/20, and whether or not we have regrets from our younger days, there are plenty of things we probably wish we had done differently. While we can’t change the past, we can use the wisdom we have gleaned over the years to make better decisions going forward and to help others on their journey. On that note, here are five things I wish I knew about college planning when I was younger.
1. I Wish I Had Started Saving Earlier
You likely know that it’s important to save as early as possible, but many people don’t realize it’s not just to get a head start on building your wealth; it’s also to take advantage of compound interest. Compound interest helps the money you put away grow faster due to interest building upon itself. For every year you delay in saving, you’ll have to contribute exponentially more to reach your savings goals because of compound interest.
Let’s say you have a goal to save $20,000 for your child’s education. If you start early and give yourself 20 years to save, you would need to put away $159 a month, assuming a 5% interest rate. But if you wait until your child is well into elementary school, to save that same amount over 10 years would require you to invest $325 a month. Starting as early as possible, even if you don’t think you have enough money to save, will add up over time and get you closer to your goals without putting a hefty burden on your budget.
2. I Wish I Had Known My Options
When I was younger, I thought the only way to save for college was in a 529 account. While these accounts are a valuable asset, they are not the only savings vehicle out there, and they may not be the best choice for your family. As state-sponsored education savings accounts, 529 plans could negatively impact your financial aid eligibility. For example, if the 529 is owned by a grandparent, distributions count as untaxed income to the student. If they are dispersed in the first or second year of college, the disbursement can reduce eligibility for need-based aid by as much as 50% of the amount of the distribution. If the plan is reported as a parent assetor a student asset, it will reduce eligibility for need-based aid by much less, up to 5.64% and 20%, respectively.
In addition, you can only spend the dollars from a 529 tax-free for certain college expenses. For example, computers qualify, but tablets and mobile devices do not. Paying for college qualifies, but paying for college loans does not. Don’t think that just because these accounts have the label of “college savings” on them means that they are right for you. Weigh your options, do your research, and work with someone who has experience in college planning so you don’t make a mistake that you might regret down the road or that might cost you tens of thousands of dollars.
3. I Wish I Focused On My Career Choices
When planning for college, we often get caught up in school choice instead of career choice, but this is backwards thinking. As with many things in life, we should begin with the end in mind. I wish I had spent more time speaking with professionals in a variety of careers to learn what they did and if the job would be a good fit for me. Instead of looking at schools in my dream location, I wish I had focused on my giftings and passions and tried to find careers that aligned with them. It’s easy to look at a job from a distance and pursue an education to get you there. It’s another thing to gain a realistic view of that career and make an educated decision before dedicating years of your life and spending thousands of dollars.
4. I Wish I Knew My Family’s Financial Picture
When you’re young, it’s easy to think that the money will be there when you need it. When you have few responsibilities and plenty of money to spend on your wants, it can be difficult to have the same financial perspective as your parents. I wish I had more open, honest conversations with my parents about which college options were possible financially and which choices were off the table because of finances.
If I had known the whole story, it might have helped me to set better goals and plan more thoroughly as a parent myself. Now, with my own kids, these types of conversations prevent dashed hopes and put us all on the same page as we strive to find solutions that work for our whole family. Getting everything out in the open not only prevents stress but lets my kids see the big picture so they understand the financial implications of their choices.
5. I Wish I Had Relied On A Professional
It’s easy to put off college planning for the future. When you are corralling toddlers and trying to get them to eat their vegetables, the thought of creating a college plan seems overwhelming and unnecessary. But as I have walked through the college planning process with my family and countless clients, I see how working with a professional while my kids were still young would have benefited me greatly. A college planning professional can guide you to the best decisions, show you your options, and keep you on track toward your goals. In the busyness of raising kids, relying on a professional to help you with this significant aspect of your finances is invaluable.
Next Steps
What college planning lessons do you wish you’d learned earlier? What financial lessons are you still learning? Whatever questions you have, we can help.
At College Planning America, we specialize in every aspect of college preparation, starting as early as the day your child is born, and walking you through each phase of your child’s life. We help you prepare for the FAFSA, college choice, test prep, scholarships, and, of course, financial planning. Our team is committed to making college more affordable for parents and students. If you are ready to start planning for college, take our strategy quiz and schedule a no-obligation get-acquainted meeting by emailing me at dcoen@sageviewadvisory.com or by calling 800-814-8742.
About Dave
Dave Coen is a Financial Advisor with SageView Advisory and the CEO of College Planning America. Along with his retirement financial industry experience, he is a College Planning Specialist. He works closely with individuals and families to provide them comprehensive financial planning that addresses all elements of their financial picture. Learn more by connecting with Dave on LinkedIn.
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