For so many of the parents I get to know in my line of work, January is all about those financial New Year's resolutions -- and all month I've been hearing how couples have pledged to make 2012 the year they really start saving more in their kid's college fund.
If you've got children, setting aside money for college sounds like a no-brainer, right?
I mean, how many times have we all heard that stashing a few hundred dollars here and there will pack a nice punch in say, ten or fifteen years when that tuition bill comes 'round and we have to pony up for all those pricey textbooks. And who hasn't been warned about how much college will cost by the time their little bundle of joy turns eighteen? I know that $400,000 estimate for a private university made me shudder. It's no wonder parents get locked into a kind of tunnel vision.
But here's what a lot of people miss: saving for college isn't for everyone. Yes, you might have to do a double take here. I really did just ask every parent to question whether saving for college is the right strategy at this point in their life. Because sometimes, it's actually better to pass on those nifty tax advantaged plans and focus on other, more important personal finance objectives -- that will get your family closer to paying for school down the road.
Without further ado, here are the four financial goals I believe every family should reach before they think about putting cash in their kiddo's college fund:
Buy Life Insurance
Whether your kid is thirteen or three-months-old, the most important purchase you can make to protect his or her long-term financial well-being is a life insurance policy. Sure, the chances of something happening to you (and/or the primary breadwinner) are, thankfully, super slim, but good parents just don't roll the dice on their child's future -- plain and simple.
The upshot: life insurance replaces the lost income of your primary earner if something happens to him or her, and you can also cover the cost of higher education if your policy is large enough. I tell every parent that putting money towards your life insurance premiums each month should take precedent over money in a college fund. After all, there are plenty of ways to help finance an advanced degree: public and private loans, part-time jobs, scholarships and financial aid packages. But if something happens to your main source of income, and you can't provide for your family's daily needs and make ends meet, there just aren't those kinds of funding options.
Pay Off Those Cards
Some basic math behind saving and borrowing: if you're paying double-digit interest on your VISA or MasterCard, but only getting single-digit returns on your college fund, you aren't helping anybody. I tell every family to start saving for college by paying down high-interest debt today.
The best strategy: kiddie costs come flying at parents left and right (my toddler literally seems to outgrow his shoes every time I turn around), but at least make a commitment to keep all of your discretionary items off of the plastic, and shoot to send in a little something extra for your payment every month. That $25 or $50 dollars plus any foregone adult charges will add up over 2012 and help chip away at that balance -- putting you in a stronger position to save for college next year.
Have A Solid Emergency Fund
Turns out, according to the most recent data, the majority of Americans can't cover an unexpected $1000 expense if they needed to. Can your family?
Before you open up that 529 account, make sure you have a solid cash cushion in case of a rainy day (or leaky roof). Given today's jittery job market, putting aside three to six months of living costs is bare minimum; I tell parents with young kids to shoot for six to nine if they possibly can. Without an emergency reserve, guess where those surprise expenses will end up? Yep, right back on those credit cards (see above).
Build A Real Budget
Nobody likes it, but the best way to save for college is to spend less. The lower your family's overhead, the more you can put towards your child's higher education in the long run.
I've found so many of the parents I work with don't have a real sense of where their money goes every year, and nobody can stick to a budget that doesn't reflect reality. With that in mind, the best thing you can do for your child's college fund this year is to print out your bank and credit card statements from 2011, and take a good, hard look at where your hard-earned cash is going every month. Bet there will be some surprises. But just think: you have eleven months to get in shape to start putting money in that college account for 2013.