Married Money Management Step 7: Invest for College (But Only If You Want to)

By Dustin | Finances & Careers

How to Invest for Your Kids' College - But Only If You Want toIf you have children, this is the step in your financial journey where I’d recommend you start putting away money to pay for their college education.

That is, of course, if you actually want to save money for this purpose.

Before we get into any details on this step, I think it’s important for all of you parents out there to ask yourself a tough question:

Do we really want to save for our children’s college education?

If the answer is yes, then that’s great and you can move on with the rest of this lesson.

However, I want you to know that despite all of the pressure you may feel from society and perhaps your parenting peers, you do NOT have to save for your kids’ college expenses.  There is no parenting law that says your kids must get a Degree in Finance on your dime.

While I think it’s a cool thing to do if you are able and desire it, I think too many people assume that college savings is a firm responsibility of all parents, sometimes to the point of stupidity (more on that below).

Personally, I had absolutely no help from my parents in this area, but I was able to get great undergraduate and Master’s degrees in engineering with no student loan debt.

How? It required scholarships and a lot of hard work during my college years, along with some practical choices in my college selection and lifestyle, but I made it.  And to be honest, I think the need to work hard has been one of the best things that happened in my development into adulthood.

So for Bethany and me, we are saving some money for our kids’ college education, but it’s not guaranteed for them and it certainly won’t cover the entire cost.  They can earn their own higher education should they choose to go that route.

There’s a Reason This is Step 7

So for those of you who want to put away some cash for college, my main point is to put this investment into proper perspective.

I have actually heard from couples who proudly put money away every month for college savings while they literally couldn’t make the minimum monthly payments on their debts.  This is simply stupid!

Saving for college is absolutely optional, and there will be other ways for your kids to attend if you don’t have their entire tuition bill set aside when they matriculate.  However, your family’s current ability to deal with a financial emergency and your own retirement funding is not optional, and you will have far fewer options available to you if you don’t adequately prepare in these areas.

Unless you like the idea of living in a van down by the river and perhaps eating dog food when you’re 70 years old, it’s essential that you keep college investing firmly in Step 7.

That means your debt pay down, emergency fund and retirement savings should all be happening in full force before you start putting aside money for this purpose.

In my opinion, that’s where this should be placed among your major financial priorities.

How Much & Where to Invest

Unfortunately, the question of how much to save for college education is not easy to answer because it varies so greatly for each individual situation.

Some variables that will impact your decision are the amount of time until you need the money, the type and location (private vs. public, in-state vs. out-of-state) of college you are anticipating, the portion of the total costs you will be covering, scholarships and loans expected, etc.

For some guidance on how much to save in your individual situation, I’d recommend you check out this great online calculator: World’s Simplest College Cost Calculator

Once you know how much you need to save monthly to reach your goals (and you’ve regained consciousness), you’ll need to decide where to invest your money to get the required returns.  While I am not going to give specific investment advice (I’m no financial professional), I will encourage you to check out the options available that provide you with a tax break on your contributions.

The two primary vehicles for tax-advantaged savings accounts are Coverdell Education Savings Accounts and 529 Qualified Tuition Programs. 

For most families, a good 529 plan will meet their college savings needs, but I’d encourage you to read more about the different options available.

If you decide to look into a 529 plan, you should know these basics:

  • They are state sponsored, but your money can be used in any state.
  • You contribute to the 529 account with after-tax money
  • You can withdraw from your account for qualified education expenses without paying any tax on your investment growth
  • If you use the 529 plan offered by your home state, you’ll likely get a break on the state income taxes on your contributions
  • You can choose to contribute to any state’s plan, and a good plan out-of-state will likely outperform a bad plan in your home state, even though you’ll miss out on the state income tax breaks.

For more specifics and some excellent resources to help you choose the right plan for your family, I encourage you to visit Saving For College and use their thorough research tools.

Let’s Talk About College Funding

As you can tell from the introduction to this post, I don’t buy into the assumption that you need to put your other financial responsibilities behind investing for college.  I’d love to hear your thoughts on this topic in the comments below.

Do you plan to pay for your kids’ college?  If so, how do you plan to pull it off?

Here’s a rundown of all the posts available to you in the Marriage Money Management series:

(photo source)

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About the Author

Dustin Riechmann created Engaged Marriage to help other married couples live a life they love (especially) when they feel too busy to make it happen. He has many passions, including sharing ways to enjoy an awesome marriage in 15 minutes a day, but his heart belongs with his wife Bethany and their three young kids.

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