Are You Schooled in College Costs?
Jul 12, 2022
Families today face the complex challenge of rebuilding from pandemic-related financial losses while simultaneously saving up to send their children to college. Meanwhile, many hardworking parents are also looking forward to the benefits of an empty nest. You should know that the best time to set up that future is well before your child fills out college entry forms. In uncertain times, saving an “empty nest egg” is the wisest preparation for tomorrow.
COLLEGE EXPENSES TO EXPECT
A little knowledge before college can help you see the importance of building savings well in advance. Take a look at these common college expenses, which generally fall into five main categories:
1. Tuition and fees. These have traditionally been easier to predict. However, schools today are raising fees to cover their pandemic-related expenses.
2. Room and board. This could be a sizeable portion of the budget. Many families opt for a local school to save on these costs.
3. Books and supplies. While these costs have distressed students and parents in the past, some online platforms are reducing these prices today. Students should always ensure that they have a book’s correct edition. Expenditures for supplies will vary by major.
4. Personal expenses. These can vary widely, depending on factors like diet restrictions and health care. It’s worth discussing needs versus wants with your college kid.
5. Transportation. Rent might be lower if students live farther from school, but you’ll need to factor in automobile or public transportation options.. Balance those against the other categories’ expenses to decide which is the sensible choice.
You’ll likely be surprised by some expenses. The best plans for your child to cook meals can evaporate when the only apartment available is a single room with a mini fridge. Honda FCU’s education calculator will help you prepare for what’s ahead.
A JOINT CREDIT CARD: HELPING YOUR COLLEGE KID BUILD CREDIT AND CAPABILITY
For many college students, this time of life is their first experience in following a budget and being responsible fora credit card. If they haven’t been taught the wisdom of judicious spending, you might consider a joint credit card as an opportunity to do this. Here’s how to make it work:
· Set up a budget. Do this before they leave for school and be clear about their limits, especially if those limits fall below what the financial institution allows.
· Monitor all charges closely. Set up alerts when the card is used and track the card’s balance regularly. This is not an invasion of privacy — it’s for financial safety.
· Coach your child. Talk often about making smart financial choices and the consequences of poor decisions. Honda FCU’s quick course can help.
NOTE: Many financial institutions, including Honda FCU, require that the college student be 18 years old to receive a joint credit card.
PREPARING FOR YOUR EMPTY NEST
After your child has grown and flown, it will come as no surprise that your senior years will require substantial funds, too. Your income may reduce if you retire, and expenses in general will likely be higher due to inflation. Take heart! These guidelines will help you avoid unhappy surprises:
· Maximize your retirement contributions. When children leave the nest, parents’ financial obligations usually shift to personal planning. Try to increase your allocation as high as 25% of your take-home income.
· Save extra income. If you find yourself with some extra income, consider stashing that cash in savings or investments.
· Check your insurance. Families often increase life insurance coverage as spouses age to protect those who no longer earn an income. It could be time to look into an umbrella policy that will protect your assets beyond basic liability insurance coverage. Also, good planning includes purchasing long-term care coverage while you’re healthy.
· Prepare for a not-quite-empty nest. Many adult children are forced to live with their parents due to rising costs. Save for unexpected increases in household expenses that could jeopardize your retirement.
· Remember your dreams. You’ve earned time to pursue your hobbies, ambitions and goals. What new adventures do you want to try? Set up the savings you think you’ll need to make your wishes come true.
THE BIGGEST MISTAKE
The biggest mistake you can make now is forgetting to save for the future. It’s understandable that you’re busy, and creating a workable budget takes time as well as effort. To help you, let’s keep it simple.
You’ll be in charge with this quick paper & pen plan:
· Income. At the top of the page, write down how much after-tax money you take home.
· Expenses. List all your expenses and split them into two groups — things you need to pay, such as rent and groceries, followed by things you want, such as the latest cell phone.
· Goals. Set goals for reducing any debt and building your savings.
· Portions. From your income, subtract your needs total. Now, you’re left with goals and wants. Pay those based on your debt level and the urgency of your financial goals.
Should you pay down your debt or put the money away in savings? Adequate savings are crucial to your financial well-being, but ignoring debt could be your worst mistake. Honda FCU’s debt vs. savings calculator can help you determine which is the better choice for your circumstances.