Education Funding

I’m going to just get this out of the way.  Currently, I am not saving anything for my kid’s college education.  I have two kids, 2 and 6.  I’m not heartless and I do have a plan.  Let me explain.  In our current situation, my wife and I thought it was more prudent to save for retirement than the kid’s education.  You see, my wife is currently raising our children and thus has no income.  We are solely living off of my income.  There just wasn’t enough to go around to fund both retirement and college for the kids.  That doesn’t mean we never intend to save for it, just not right now.

Going Back to Work

My wife plans on rejoining the workforce once the kids are both in school.  She plans on going back to college to further her education.  We estimate that her schooling will take a couple of years.  Her intention is to become a school counselor and thus have similar hours as the kids.  So, hopefully there won’t be any additional childcare expenses with her beginning work.  It is with her new income that we plan on funding any education expenses for the kids.

The Number

Even before our first child was born, we had known that my wife would stay at home with the kids.  It was something she wanted to do and we thought would be best for our kids.  We are fortunate enough that I am able to support all of us on just my income.  Knowing all of this, I set about to estimate whether we could afford to pay for college when the kids are of age.  I started out by assuming a starting salary for my wife when she reenters the workforce.  I estimated $52,000 a year.  This was based upon her salary when she left the workforce, then inflated to future dollars.  I then assumed we would lose about 25% of her salary to taxes.  Then I assumed we would set aside 50% for college funding and 25% for retirement savings.  I then made an assumption about my investment return.  I assumed that I would be conservative with the money and only earn a 4% return.  I also assumed that college costs would increase at a 6% annual compound rate.  I assumed that if my children went to school today, that the one year cost would be $30,000.  So, the first year for my daughter would cost about $64,000 and the first year for my son would be $81,000.  The last assumption that I made was that the contributions we make would increase at 5% per year.

The Result

Based on my calculations, we should have just enough for both of the kids.  If they turn out not to need the money because of scholarships or some other reason, I am going to on a really nice trip.  In the end, we will let the kids decide what the best school is for them, but it also won’t be a blank check from mom and dad.  We know exactly how much money we are setting aside.  If our financial picture is one that allows us to help further we will, but we also won’t let it derail us financially.

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