NDSU Extension Family Economics

North Dakotans Saving for Education

How To Make It Happen - Creating an Education Savings Plan

Now that you have some idea what your student's future education will cost and you have a plan for how much of that amount you will be paying, we can create an education savings plan.  The sooner you develop a plan and put it into motion the easier it will be to build that education savings. If your student is still young, time is your best friend. 

To start developing your education savings plan, state your goal. It always helps to write the goal down). Your goal should be specific, attainable and time related.

Your goal may look something like this.              Goal: We will accumulate $20,000 in education             savings by the time Ellie begins college in 2017.

When figuring how much to save each month or each year to accomplish our goal we need to figure what rate of return we can receive on our savings over time.  The more aggressively we invest the higher the rate of return we may earn.  If we keep our education funds in more conservative savings options we will earn a lower rate of return on our money.

In our example, let us say that Ellie's parents have decided to put their money into a savings account paying 2% interest.   With 12 years to save their monthly contribution will need to be $122.80 to meet their goal.  If they had decided to put the money into mutual funds and anticipate a 9% return, they would need a monthly contribution of only $77.03.  If they had decided to set aside money in a mutual fund the year Ellie was born, their monthly savings could have been $37.01.  If they wait until Ellie is three years from college, they would need to set aside $538.62 each month in a savings account paying 2% interest. 

Here is an online calculator from FinAid!® to help crunch your numbers.  Savings Plan Designer (Flat Contribution)  This calculator shows how much money must be contributed each month to an interest-bearing bank account or investment fund in order to reach your savings goals.  

 FinAid!®, has another calculator to show how your savings will grow over time. The Savings Growth Projector  illustrates how regular contributions to an interest-bearing bank account or investment fund will grow due to compounding interest. 

Don�t be overwhelmed by the numbers. Start saving whatever you can, even if it is just $25 or $50 a month. The important step is to get started and once you start saving, you will find it easier to increase the amount you save later as your income increases.

If you are concerned about how you will find the money to fund your savings goals start by preparing a spending and savings plan for your family.  A plan will help you to see where the money (income) is coming from, where it is going (expenses) and where you might be able to make adjustments to redirect money to accomplish your financial goals. You may want to check out these NDSU Extension Service resources to assist you in creating a family spending and saving plan:

            Family Money Manager
            Family Spending Plan
            Family Balance Sheet
 

Tips for easier saving: Start saving early. (However, it is never too late to start!) Create a specific goal and write it down.  Check it periodically and measure your progress. Set up a special education savings or investment account separate from other family accounts. Save on a regular basis; weekly, biweekly, monthly or whatever works best for your family. Start small if you have to but save as much as you can. Use payroll deduction if you can to move your funds directly into a savings or investment account. Increase the amount you save each year. Reinvest all interest, dividends or capital gains. Identify areas of your spending plan where you can cut back and redirect funds to savings. Saving money is a good habit to acquire. This would be a great time to involve your children and teach them about saving.  They may be able to contribute small amounts too.

 

Return to Saving for Education topics:

The Value of Education
What Will It Cost?
Who's Paying?
How To Make It Happen
It's Never Too Late
Resources
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