We know no one likes to talk about budgets, but shopping for college requires understanding how much you can afford to pay and creating a college budget. How do you start? First, you figure out how much you can afford for a year of college, and then, hopefully all you have to do is multiply that by 4 (years) and add some inflation.
Let’s break down college affordability into some buckets so it doesn’t seem quite so overwhelming.
Bucket 1: College Savings Accounts (Assets)
- Coverdell Education Savings Account
- Prepaid Tuition Plan
Bucket 2: Other Parental Assets
This is money you may have earmarked for college that isn’t in a specific college savings account
- Stock options
- Brokerage account you’ve been putting money in
Bucket 3: Parental Cashflow
- How much money do you have coming in every month, what is left over, and can you allocate any of the overage towards college costs while your child is in college?
- Think about what you are currently spending on your child while they are living at home. These expenses will more than likely go away when they go to college so could you allocate this money to the college budget each month now?
- Do you pay for sports or other types of extracurricular activities?
- Are you paying private school tuition?
Bucket 4: Child Cashflow
Do you want your kid to have some “skin in the game” financially for their own education?
- Summer job money
- Part time job in college
Bucket 5: Outside Help
Do you have people who want to help cover some of the cost of college for you kids? This is another bucket of money you need to think about as you are making your college budget.
- Best friend
If you have a high schooler, it’s time! Get your head around your college budget early so you can understand affordability. When you are armed with your newly figured college budget, you can look at the total cost of each college your child may be interested in, subtract discounts and merit the school will offer, then subtract how much you can pay and see if you have any remaining balance. If you’ve paid for all of it- WAY TO GO! Your college budget work paid off. If you still have more to pay, it’s time to figure out how or if you want to cover that difference, or if you need to cross that school off the list.
Understanding what you can afford for college and creating your college budget allows you to plan for college confidently. So take some time to hash out those numbers now- you’ll be so glad you did when your child is in the throes of college searches!