Education Funding Strategy | There’s More Time Than You Think
Good news, right? So what’s the trick?
Actually, there is no trick. Follow along for about two minutes.
For the sake of illustration, let’s say a child is born this year and you want to plan financially for her college education. We’ll make the assumption that you expect to pay for a traditional four year degree. Further, you have a personal goal to pay for college without the need to take on any debt at the time the tuition bills are due.
How long do you have to grow your investments to meet this obligation?
Related: See Financial Calculation Tutorial – Paying for College
In the US, most children are ready to start college at eighteen or there about. Therefore, you probably expect that you have 18 years to save and invest for their education if you start the year the child is born. But in reality, you have about three and a half years longer or 21.5 years.
“How’s that?” you ask.
Just think about it for a moment. The entire cost of college is not due the day the students starts their studies. While payment plans vary, one typical way to pay for college is to pay the cost of each semester at the beginning of the semester. That means for a typical four year degree the final payment isn’t due until about three and a half years after the student starts their freshman year.
The point of financial planning is to design an investment plan whereby the investments pay for the goal – not your current personal income. The goal, in this case, is to pay for a four year college degree.