A Reasonable Approach to Saving for College

 As a new parent, I’ve got college on my mind.

While it’s true that it’s going to be 18 years before my wife and I make that first tuition payment, the savings journey will need to start soon if we want to be able to afford those payments. 

If Bo (our son) ends up going to a flagship state university like his dad, we will need to have roughly $100k (today’s dollars) ready to spend on tuition and living expenses throughout the four years. If he ends up getting into an Ivy League institution like his mom, the cost could be much, much more. If he takes more than four years to graduate (ahem, also like his dad), we should expect the cost of his education to be roughly equivalent to that of a modest vacation home. We may have another child eventually, so make that two vacation homes. 

Of course, Bo and his future sibling’s chosen educational paths are only one of the variables to consider here. There are several other factors at play, including inflation assumptions, the potential for scholarship money, and whether we will expect him to cover a portion of the costs via student loans and part time work. 

In his excellent book, “The Price You Pay for College”, New York Times finance columnist Ron Lieber makes the case that these various factors amount to one of the biggest, if not the biggest, financial decisions a young family will ever have to make. As a financial planner who has helped several young families plan for their own children’s education, I know that Ron is not being hyperbolic here. Not only will your child’s educational journey have an enormous impact on your family’s financial future, it will also have a profound influence on the trajectory of their life. After all, it is during the years spent in college that many of us establish a career path, make lifelong friends, and meet the person who could one day become our spouse. The college decision matters very much. 

If you’re reading this as a young parent and starting to feel the pressure, join the club! I am right there with you. 

Personally, my greatest fear isn’t that Bo won’t have what it takes to get into a great school. It’s that he will get into the school of his dreams and that my wife and I will have to look him in the eye and tell him that we simply cannot afford to send him there. 

Every parent wants the best for their children. The idea of not being able to afford to give it to them is sobering. It’s tempting to pull out all the stops and make saving for college the top priority.

As understandable as this impulse is, I’ve come to believe there’s a better way. 

In his book, The Behavior Gap, writer and former financial planner Carl Richards recounts a conversation he had with a friend that changed the way he thought about saving money for college. When Carl asked his friend, Brad, how much he was saving for his kids’ education, Brad’s response surprised him: 

“Carl, how about this: I’m saving as much as I reasonably can.” 

Carl’s friend didn’t say that he was saving as much as he could for his kids’ college. He said he was saving as much as he reasonably could, and therein lies the magic of this mindset. 

When I reread this recently, I started to obsess less about stashing away outlandish sums of money into a college savings plan each month and instead began to focus on finding a path that felt realistic and prudent for our family. I started to think about what felt reasonable

For my wife and I, reasonable means making sure we’re saving enough for our retirement years so we never have to worry about becoming financially dependent on our kids. It means having enough extra cash flow to take a couple of memorable family vacations each year. It means not working so hard to save for tomorrow that we miss out on spending valuable time together as a family today. 

Could we afford to pay in full for Harvard tuition if we sacrificed some of those things? Probably so, but would it be worth it? As Paula Pant, the host of Afford Anything podcast, likes to say, “you can have anything, but you can’t have everything.” 

When it comes down to it, personal finance decisions big and small have one thing in common—they are about tradeoffs and opportunity costs, and it’s up to each family to strike a balance that feels right. 

As for my wife and I, we’re comfortable in the knowledge that we’ve landed on a shared definition of “reasonable” We think Bo will understand. 

If you’ve got college savings on your mind as well, a fiduciary advisor can help bring the objectivity and expertise needed to create a reasonable savings plan. When you’re ready to start the conversation, we’re here to help.

Andy Baxley cfpAndy Baxley, CFP®, CIMA®, is a Financial Planner in the Chicago office of The Planning Center, a fee-only financial planning and wealth management firm. Email him at andy@theplanningcenter.com.