Saving for college: It's not just about the numbers

http://www.savingforcollege.com/articles/saving-for-college-its-not-just-about-the-numbers-924

Wealth Management Advisor, Crescendo Wealth Management, Guest Contributor

Investing and saving recommendations are typically based on economic and financial calculations, research and theories. However, despite what a time value of money calculation may tell you, I've found that the best savings plan for college really differs for each family. Before you even start putting money away, it's important to understand your financial picture and discuss your value-based goals for funding college.

First, map out your family's financial facts:

Parents' ages and income

What are your total annual household earnings? How long do you and your spouse have until retirement?

Cash flow

How much do you earn on average each month and how much do you spend? What's your monthly surplus or deficit, and are there opportunities to increase earnings and decrease spending should your surplus not be enough to fund your goals? Do you anticipate significate fluctuations in cash flow due to life or career events?

Retirement savings

Are you contributing to your own retirement? Parents should generally be saving between 10-15% of their income for retirement before contributing for college.

Ages and number of children

If there is a strong likelihood that your family will have more children, estimate the timeframe and how many. The number of children and their age gaps may impact how you fund education accounts such as 529 plans.

Assets and liabilities

Are there high interest rate liabilities that should be paid off before you start savings for college, or is there idle cash that could be deposited into a tax-advantaged vehicle like a 529 plan?

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Gifts from other family members

Is there a good chance that an outside family member will help pay for future college costs? Funding college through a 529 plan or direct to college gifting can be a tax advantageous way to transfer wealth for affluent grandparents or other family members.

If the thought of mapping out your family's financial picture is overwhelming, you may want to consider hiring a qualified financial planner on a project, hourly or ongoing basis. The silo approach should not be used when saving for college; families will improve their overall financial health if they fund college as part of a holistic financial plan.

It's also important to reflect on how your own financial values may impact your decisions about paying for college. I've come across many parents who haven't even discussed college costs with their children. And what's even more concerning is that this can lead to parents and children having very different opinions and expectations about who's going to pay for college, which can strain their future relationship.

Walking through the following questions about your financial values will help you set realistic goals for funding college:

• How much did I contribute to my own higher education and how did this impact my experience?
• What would I change about my own college experience or lack of college experience?
• What type of college experience do I want my child to have? What type of school do I wish they could attend? What college or type of college experience is my child most interest in?

RELATED: The biggest college planning mistake parents make

• What portion of higher education do I believe my child should fund and why?
• Will funding include tuition for four years only, or am I willing to contribute to additional costs such as travelling abroad and advanced degrees -and, if so, what portion?
• What financial lesson can I teach my child by having them fund a portion of their college costs?
• How do I feel about my child having student loan debt after graduation? Am I comfortable with the idea of taking on parent loans?
• What financial needs, goals and dreams do I have, and how will saving for my child's college impact these?

It's important to remember that funding college is an amazing gift, and one that is unique for each child and family based on their situation and values. Once you have a goal in mind, share it and your plan with your child as soon as they are age appropriate. Setting expectations, whether you are funding 25% or 100%, in-state public or Ivy League tuition will help your family make the best school and financial choices. The beautiful thing about these types of family money conversations is that they strengthen family relationships and can enrich your child's long-term relationship with money.

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Brooke Napiwocki, CFP®, MBA is a Wealth Management Advisor at Crescendo Wealth Management in Southeastern, Wisconsin. She focuses her practice on professional women and couples who are seeking a holistic approach to financial and life planning. Brooke has advised individuals, small businesses, and institutional clients in the financial services industry for the past 15 years.