This free online college fund Calculator will help you to create a college saving plan that anticipates the rising cost of college tuition -- as well as other educational expenses -- due to the inflation that is expected to occur between now and when your child graduates high school.
Specifically, this calculator will allow you calculate your present college savings fund's shortfall (savings gap) based on the rate of return you expect to earn on your education investments, and on the rising college costs percentage you expect to experience. The calculator will then take that shortfall and calculate the monthly amount you need to add to your savings in order to eliminate the shortfall.
Finally, the college fund calculator will also create a year-by-year summary showing your savings growth versus the rising college costs.
Note that if you have more than one child and you would like to formulate a college savings plan for all of your children at one time, please visit the Multiple College Planning Calculator.
Having helped three kids through college myself I can tell you that if you really want to properly prepare for your child's post-secondary education, and insure that the funds you have set aside will be sufficient, you need to help them to discover what they want to do when they grow up.
Why? Because if your child is not certain as what to they want to study to become -- by the time they graduate high school -- you can almost bet that it will take them a year or two longer to get their degree.
Or worse, if your child ends up getting a degree for the wrong reasons (because the field pays well, easiest route to a degree, etc.), you could end up paying tens, even hundreds of thousands of dollars for a degree in a field they end up hating.
Therefore, in order to avoid over-paying for college or paying for a degree that is never used, your college financial planning should include helping your child to develop a clear and meaningful career path.
In my opinion, beyond the normal responsibilities that come with raising children, the next most important thing you can do for them is to help them discover a work they will enjoy -- a work that is well suited to their talents, abilities, genuine interests, values, and personality traits.
This involves paying very close attention to things like ...
And remember, you are trying to help your child discover the service they will most enjoy providing to others, not a career that will make you as the parent happiest or proudest.
The goal should be to form a solid hypothesis as to what type of job or business your child would most enjoy by the time they enter their last year of high school -- preferably sooner.
Once a solid hypothesis is reached, the next step is to help them find ways to test that hypothesis in the real world -- without making a long term time or money commitment -- such as after-school jobs, micro-business ventures, or volunteering.
If your initial hypothesis proves inconclusive, form another hypothesis and test that one. Repeat this experimentation process until a satisfactory conclusion is reached.
If it turns out that your child ends up graduating high school without a self-actualizing career path in mind, my advice would be to encourage your child in one of the following directions:
Of course, no matter which direction you choose to encourage, you will always want to sell them on managing their finances in such a way as to preserve the financial freedom to follow their dreams.
The bottom line is that while some children are born with obvious talents and abilities (child prodigies), the majority are born with talents that are obscure and therefore require a process of experimentation in order to ferret them out. Your goal as a parent should be to assist them with that experimentation process throughout their childhoods, and then encourage them to seek inexpensive ways to experiment in the real world instead of paying $25,000 a year (plus interest) to experiment as an unemployed, full-time college student.
With that, let's use the College Fund Calculator to calculate a plan to save for college education.
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Child's first name: If you don't want to enter a real name for your child, simply enter an identifying nickname.
Years until college: Select the number of years between now and when you expect your child will start college.
Total currently in college savings funds: Total up your current college savings accounts and enter the total on this line. If you have no savings, simply leave the field blank.
Total you expect to receive from outside funding: Enter the amount of money you expect to receive from outside sources (inheritance, grants, scholarships, work study, etc.). Note that the college fund calculator assumes these funds are received at the time the student begins college.
Estimated return on college savings accounts: Select the average annual percentage you expect to earn on the money deposited to your college savings accounts.
Estimated annual inflation rate: Select the average annual inflation rate you expect to see between now and when your child starts school (the annual college inflation rate as of 2012 was 4.8%, or 3.4% inflation adjusted). Note that this rate will also be used to inflate the annual cost from the base year of 2012 to present, as well as for each year your child is in college.
Annual cost of college: Either select the type of school you expect your child to attend (the college fund calculator will enter an estimate for you based on the The College Board's Annual Survey of Colleges for the 2012-2013 school year), or enter your own estimate of the current annual cost to attend the college of your choice. Note that if you enter your own estimate, the college fund calculator will assume a 4-year term.
Start year: This is the calculated year that your child will start college.
Future college education cost: Based on the entered current annual cost of attending college, and on the selected annual inflation rate, this is how much the selected college education will cost (total for 2-years or 4-years, depending on your selections/entries).
Future value of current college savings funds: Based on your entries, this is the future value of the amount you currently have saved. Note that the college fund calculator assumes these are growing at a tax-free rate (or you are paying tax on earnings out of pocket).
Future savings plus outside funding: This is the total of the future value of your present savings, plus the amount you estimate will come from outside funding sources.
Savings shortfall: This is the difference between the forecasted cost of paying for your child's future college education, and the future value of your present savings and outside funding.
Monthly deposit to cover savings shortfall: This is the monthly amount the college fund calculator estimates you will need to deposit into your college saving funds in order to cover the expected savings shortfall.