Many parents would like to help their children pay for their college education, especially with tuition prices increasing faster than inflation every year. Finding the money to put aside every month, however, is a different story. Yet, if you dedicate yourself to making a grand per month on a side venture, you could very easily set aside enough money to partially or fully fund your child’s college education.
First, let’s consider a few numbers. (I used the calculator at Saving For College to assist with these computations.) All scenarios assume the college your child will attend costs $20,000 this year and will increase by 6% per year. You will be investing in a college savings vehicle that will give you a 5% rate of return (which is probably low when averaged over the years).
You have a one year old child, and you have not saved anything. You want to pay your child’s full college education. To do so using the variables above, you will need to save $614 a month until the child graduates from college. Earning an extra grand per month could easily help you do this.
You have three kids, ages 8, 4 and 2. You have not saved for their college education, but now you are earning an extra grand per month, so you want to see how much you can save for each child. If you invested the full grand per month, you would be able to pay 50% of your children’s college education using the variables above. You would invest $1,027 a month–$383 for your 8 year old, $330 for your 4 year old and $314 for your 2 year old.
In today’s current economic climate, much of the financial aid that is available to students is in the form of student loans. In fact, according to The Huffington Post, among college students who took out loans (and that is 2/3rds of them), the average student loan debt for those who graduated in 2010 was $25,250. Those who want to pay off the loans in 10 years will need to pay nearly $300 a month and will pay almost $10,000 in interest over the life of the loans.
However, many students who graduate owe much more than this; these students often delay important life milestones such as getting married, having kids, and buying a home because of the size of their monthly student loan burden. With a grand per month wisely invested, you could free your child of this burden. Even if you can’t set aside enough money to pay the entire college burden as is the case for the family in example two with three kids, you could make a significant impact on college affordability for your child. Without student loans to pay back, ideally your child could grow his wealth faster and build a nice savings for his child to go to college.
While you may not think working 15 to 20 hours a week and earning a grand per month can have much of an impact, now you know differently. Your grand per month has the power to change the financial dynamics of future generations.
This post was written by Melissa who blogs at Mom’s Plans.