repost­ed from U.S. News & World Report
by: Rey­na Gob­el

 

Par­ents who stuff their chil­dren’s col­lege funds with more than they can afford each month are set­ting them­selves up for fail­ure. 

 

“Par­ents start off sav­ing $500 per month, but then the car breaks down or they need new tires,” says Mack­ey McNeill, a cer­ti­fied pub­lic accoun­tant and per­son­al finan­cial spe­cial­ist. “But mon­ey is a habit.” 

 

Fam­i­lies can start by putting $25 to $100 con­sis­tent­ly in a 529 plan, a tax-advan­taged col­lege sav­ings account, and then add more when and if they can, she says. 

 

But even if the month­ly amount stays the same for­ev­er, par­ents can make a dent in the cost of col­lege, espe­cial­ly if they start invest­ing when their chil­dren are babies, says Lori Luck, a cer­ti­fied pub­lic accoun­tant and per­son­al finan­cial spe­cial­ist. 

 

McNeill says with an invest­ment of $25 per month, start­ing when a child is 5 would accu­mu­late $6,300 over 13 years, if the account earns an aver­age of 7 per­cent per year. She says this is equiv­a­lent to two years of com­mu­ni­ty col­lege tuition, based on data from the Amer­i­can Asso­ci­a­tion of Com­mu­ni­ty Col­leges.

 

If par­ents of a 5‑year-old saved $100 per month for 13 years with the same growth rate, they’d save $25,300 for their kid’s edu­ca­tion, McNeill says – near­ly enough to pay for a year of pri­vate school tuition and fees. Accord­ing to an annu­al study on trends in col­lege pric­ing from the Col­lege Board, the net price of pri­vate col­lege in the 2012–2013 school year was $23,840. 

 

With $1,000 in schol­ar­ships or from a part-time job, that sav­ings could pay for 25 per­cent of the four-year tuition and fees at a pri­vate col­lege or uni­ver­si­ty, McNeill says. 

 

McNeill per­son­al­ly start­ed set­ting aside $25 per month for her niece and nephew, now 8 and 10, respec­tive­ly, when they were 1 and 3 years old. By the time they go to col­lege, she expects the invest­ment will pay for a com­put­er, liv­ing expens­es or part of the first year of tuition for each of them. 

 

If par­ents did­n’t get a chance to start invest­ing con­sis­tent­ly in their chil­dren’s col­lege edu­ca­tions while they were still in ele­men­tary school, invest­ing month­ly start­ing dur­ing their chil­dren’s junior high or high school years can still sig­nif­i­cant­ly help pay for their edu­ca­tion

 

Sav­ing $25 per month for six years with a 5 per­cent annu­al growth rate adds up to $2,100, says McNeill. 

 

“This sav­ings plan would cov­er one year of stu­dent fees, activ­i­ty fees, park­ing pass­es and oth­er expens­es stu­dents have beyond tuition, room and board and books,” she says. She bases her esti­mates on the “oth­er expens­es” cat­e­go­ry from the Col­lege Board­’s study. 

 

If par­ents are able to save $100 per month for six years, they’ll accu­mu­late $8,300 if the account earns 5 per­cent annu­al­ly. This is near­ly the 2013 nation­al aver­age for four-year pub­lic col­lege or uni­ver­si­ty in-state tuition and fees, accord­ing fig­ures from the Col­lege Board. 

 

The extra bonus to sav­ing an afford­able amount is it inspires oth­er fam­i­ly mem­bers to con­tribute. If you’ve been sav­ing for six years and only have $38 saved in an account, aunts, uncles and grand­par­ents won’t be inspired to con­tribute, says Stephen Lovell, a cer­ti­fied finan­cial plan­ner and host of “The Good Life Made Bet­ter” radio show. 

 

But if you’re sav­ing on a reg­u­lar basis, fam­i­ly mem­bers see the mon­ey add up and want to chip in, he says. His wife con­tributes $25 per month for each of her step­grand­chil­dren. 

 

Chil­dren them­selves could also be inspired to con­tribute to their own edu­ca­tion, says Luck. Know­ing their par­ents are sav­ing for their edu­ca­tion gives chil­dren inspi­ra­tion to do the same, she says.