Wed, 12 November 2014
Planning for a child's college expenses is a major financial goal for many parents. Unfortunately, this is an area filled with conflicting advice.
Some people feel that saving for college is a financial goal of utmost importance; others feel it's not worth the money. Many that desire to save for the goal get constantly conflicting advice on whether to do a pre-paid tuition plan, 529 college savings plan, EE education bonds, cash value life insurance policy, or any of a couple other dozen exotic ways to plan for this expense.
Today, we continue our college series by teaching how to do a calculation of the need. I teach you how to use a simple financial calculator and paper and pen and come up with a precise dollar amount to save for.
How to manually do the math for the college need on a financial calculator:
Step 1: Calculate the cost of the first year of college with a simple future value (FV) calculation.
PV = -$20,550 (cost of college today)
Step 2: Calculate how much money you need to have available when your child is in their first year of college.
PMT = $-55,336.48 (cost of college each year)
Step 3: Calculate how much the parents need to save in either a lump sum (PV) or yearly amount (PMT) or monthly amount (PMT-convert i and n to monthly amounts).
LUMP SUM VERSION
YEARLY SAVINGS VERSION