Welcome to August and, of course, back to school season. This time of year should be a timely reminder for parents and grandparents to think about how well we save for education. According to the study How America Saves for College, 25 percent of families don’t save for college because they believe the student will qualify for enough scholarships and financial aid to cover the costs of college. In reality, only 61 percent of students receive scholarships and those scholarships only covered 29 percent of their total college costs. Does this surprise you as it did me?
Families should convene a “family conference” to talk about paying for college and then create a plan that will cover the college costs left after scholarships and grants are applied. A budget is a key step in understanding the total cost of college and what will be affordable.
It cannot be emphasized enough that students can easily lose track of where money goes! Small daily purchases add up quickly, and there may also be some larger expenses such as car insurance, car payment or cell phone, that are either already the student’s responsibility or will be soon. Knowing exactly how much money is available and how it should be spent will help give you control over the situation.
A budget can also help you:
- Know if you’re spending too much on certain things.
- Stay out of financial trouble.
- Avoid impulse spending.
- Set and reach financial goals.
A budget is created in three simple steps:
- Track your income and expenses for one month.
- Subtract your expenses from the income. Think about the result – are there areas where you can cut costs?
- Maintain your budget on a monthly basis. Keep looking for ways to reduce spending or increase income.
- Use an in-school budget calculator to figure your budget.
Finally, talk to a financial advisor about a 529 College Savings plan. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. It can be a well-structured vehicle to keep you disciplined in saving for college. Any MidWestOne banker would be pleased to help point you in the right direction.
Make it a great school year!