5 Simple Steps to save for Your Child's Education | Ben LeFort | Skillshare

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5 Simple Steps to save for Your Child's Education

teacher avatar Ben LeFort, personal finance & writing online

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Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

8 Lessons (18m)
    • 1. Intro and class project

      0:42
    • 2. Why save for your child's education

      2:08
    • 3. Step 1: Put on your oxygen mask first

      1:38
    • 4. Step 2: How much will college cost

      3:29
    • 5. Step 3: Your college fund savings plan

      2:39
    • 6. Step 4: How to invest college savings

      2:27
    • 7. Step 5: Bring child in on the plan

      3:24
    • 8. Wrap up and review

      1:21
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About This Class

This class will act as a guide to help you develop a savings plan to help cover the cost of your child’s post-secondary education.

In the video lessons we cover the 5 steps to developing a college savings plan.

  • Step 1: Get a solid handle on your own finances first.
  • Step 2: Come up with an estimate of what college might cost by the time your child graduates from high school.
  • Step 3: Decide how much of that cost you want to help pay for.
  • Step 4: Build your savings plan and leverage government-sponsored education savings programs.
  • Step 5: Bring your child in on the plan and find ways for them to help bring the cost down.

Meet Your Teacher

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Ben LeFort

personal finance & writing online

Teacher

Hi Everyone, 

My name is Ben and joined Skillshare to teach two subjects that I've been passionate about for years.

Personal finance Turning online writing into a scalable business

I invite you to check out all of my classes on these subjects and let me know if there is a subject that you think I should teach a class on that I currently am not. 

Cheers,

Ben 

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Transcripts

1. Intro and class project: Hey, guys, My name is Ben LeFort. I'm going to be your instructor for today's class, where we're gonna learn how to save for your child's education. Your class project is going to be using the Excel calculator. I've actually provided you a calculator that will, after you feel in a few variables from watching these videos and these lessons, you're going to get your own savings plan that the calculator will tell you exactly how much you need to start saving, starting right now to have enough money to pay for your child's education when they graduate high school or whenever it is that they you expect that they will go to college or pursue some type of further education beyond high school. So if you guys are ready to learn, let's get started. 2. Why save for your child's education: So before we start building our savings plan, it's worth taking a few moments to discuss why it's important to help our Children safe for college in the first place. I wise is an important goal saving for college. The reason is because college is really expensive these days. In 1988 the annual tuition for four year public institution in the US was just under $3200 . In 2018 the same tuition for the same education would cost nearly $10,000. That is a 212% increase, and that is adjusted for inflation at the same time. In 1988 the annual tuition for four year private university was $15,000. In 2018 the tuition for the same private university would be nearly $35,000. Again, that is 130% increase, adjusted for inflation, and as a result, student debt is on the rise. Seven out of 10 college students will graduate with student loan debt. The average student loan balances more than $37,000 in the US alone, there's more than $1.5 trillion in outstanding student loan debt. So we might ask yourself, Why even bother going to college? Because that seems like a very expensive proposition. And the reason that someone would still go to college in 2020 is because it still pays toe have a college or university level education. Men in the US, with a bachelor's degree earned $900,000 mawr over the course of their lifetime than men with simply a high school degree. Men with graduate degrees earn 1.5 million mawr in lifetime earnings than men with only a high school degree, while women with graduate degrees, $1.1 million more than women was simply a high school degree. So, yes, college is expensive. Yes, student loan debt is on the rise. But and yes, you know, having a college education is still a good investment if you make it worth it. 3. Step 1: Put on your oxygen mask first: step one is actually to figure out if you're in a financial position to be saving for your child's education in the first place. You know, I'm big believer that we need to put on our own oxygen mask first when it comes to finances , meaning you have to be able to financially stable and cover your own financial goals before focusing on someone else's, even your child's financial goals. So there are three things that you should have in place before you start saving for your child's education. The first is he should have a fully funded emergency fund in place. Second, you should probably have all consumer debt paid off credit cards, personal loans, all that stuff paid off, and third, have a retirement plan in place that will allow you to retire at the age that you want. If you have those three things in place, then you're probably a pretty good position to start saving for your child's education. If not, you probably focus on those three goals first, because really, in the end, you wanna have financial stability for the rest of your life because if you get old and your finances are a mess, and you're not able to retire. Guess who's gonna be taking care of you, your Children, your adult Children. And it's someone who has had both student loan debts and has had to take of care for parents and financially take care of my parents. I can tell you which one I'd rather have. The student loans were much less of a burden than having to take care of an adult parents who was in a bad financial situation. So that is Number one. You want to spare your Children from that burden in the future of having Teoh financially care for you, so you need your finances in order. So if they're not focus on those three goals, if you have those three goals and then you're ready to move on to step two. 4. Step 2: How much will college cost: Step two is to figure out how much college will cost. So therefore, big variables. We need to think about what type of school or educational program do you expect your child will attend? Where is that school located? What's the current cost of tuition, books, room and board? And what's he assumed? The rate of inflation for the cost of college? Let's dive into each of these variables. So what type of education do you expect for your child? Teoh Obtain Gonna be College Community College Trade Program? There's a lot of different options For the purposes of this calculation. We're gonna assume your child is going to a four year college or university program because that is more expensive than a lot of other options. So if you are able to save for that option, you're gonna be able to save and cover costs for cheaper options. It's well where the college is located will have a massive impact on the financial cost for your child to attend in North America. Here is the cost. The average cost for a four year university or college program in Canada That's gonna total you $72,000 over four years at us. If you're attending in state school and intern in state residents, it's gonna cost you around $88,000 us over the four years. And if you're a attending a private college in the United States, that's gonna cost the around $200,000 over those four years. So this is the baseline for domestic four year program in North America. So those were the cost if your child was to attend school in North America this year. But what if your child is not attending school for another 18 years? What if you just had a newborn and you want to start saving for their child's education? What you're going to do that is you have to know what it costs today, But then you have to use an assumption for inflation and project what it's gonna cost by the time your child actually goes to college or university. So in this calculation, we're going to assume that the cost of tuition, the cost of attending college increases by 3% per year. We're also gonna assume that your child was just born and won't be attending school for another 18 years and given those assumptions we would expect to call the cost of a four year degree for in state college in the United States would be around $150,000 in 18 years . Now, the great thing about the calculator that we're gonna use in this example here is that it could be customized for any time horizon any assumption of UN inflation in any assumption on the costs of college. So if you feel like it's gonna cost mawr or less than the example were using, that's no problem. You just enter that into the calculator and we're gonna discuss that shortly. And then finally, you have to decide how much of that costs you're going to cover. $150,000 might sound like a terrifying amount of money, and frankly, it is. But don't worry. You don't have to cover 100% of the costs. You just have to figure out how much you want to cover. Maybe it's 50%. Maybe it's 25%. Whatever it is, any amount that you cover is a gift to your child, so don't feel like you're obligated to cover everything. However, if this calculation that we're gonna do in this? In this example, we're gonna assume that you were covering 100% of the cost again just to give you kind of that higher and amount of what you would need to save if you wanted to cover all of the costs. And if you don't, you can kind of just back it out, and it will be an even easier savings plan. 5. Step 3: Your college fund savings plan: All right. So in the resource section tab of this class, you're going to see an Excel file that you can download titled College Savings Calculator. Open that up now and follow along. And we're going to figure out how much you would need to save to cover your child's education and how to use the calculator. Opening up the college savings calculator here is how we're going to use this. So we're gonna assume again the current age of the child is zero. They were just born newborn baby. We're gonna assume that they go to college at 18. After they graduate from high school, we're gonna assume again that the cost of tuition currently today is around $88,000 for four year degree. We're also gonna assume a 3% rate of inflation, and we're gonna assume that you returned an average of 5%. And we're gonna assume also, let's say you have $1000 right now to kind of pre fund the college fund. So we're starting off with $1000. Given all those assumptions, you're gonna have to in that scenario say, $421 per month, so Let's just show you a few examples Student show you have. This would change if we change the variables. So let's say your child is not newborn. Let's see, they're five years old and you're just getting started and actually don't have any money in the college fund. It also we're starting from zero at the age of five C of this right now, you're gonna have to say $682. This is just showing the simple math of compound interest. The earlier you start saving for your child's education, the less you're gonna need to save each month. The later you start, the more you're gonna need to save every month because you're making up for lost time. The later you start, the more you pay will show another example, etc. Didn't start till they were 10 years old. So you go from paying $682 a month to nearly $1300 per month. And also, if you're if you assume your kid, maybe they'll take a gap Year two. Maybe they own search till they're 20. That as well, we'll bring down the cost of way or need to save each month. Also, the inflation that has an impact as well. If you assume a 4% rate of inflation instead of three, that is going to consist significantly increase the amount you're gonna need to save each month. And of course, you know the amount actually have saved is gonna have an impact as well. If you had already $10,000 saved, you know that's gonna have a significant impact on how much you need to save moving forward . So just all the different variables you can play around with on this calculator. The highlighted cell here in sale be eight. That's gonna tell you exactly how much you need to start saving, given your variables to be able to fund your child's education. But when the time comes 6. Step 4: How to invest college savings: So you invest aggressively in things like the stock market that have a higher expected return than safer investments. You're gonna be able to fund MAWR of that college fund through return on investment in compound interest, which means you would have to save a less than if you were investigating cash or bonds with , you know, it's safer investment. But that higher expected return also comes with a high level of risk. If the stock market tanks at the wrong time, it could wipe out a significant amount of your child's college fund just as they're getting ready to attend college, which would put you in a really difficult situation. On the other hand, if you invest in a conservative portfolios, you know bonds and cash, the really low value are low expected return investments. That's means you're gonna have to carry mawr of the load because your investment returns will be lower. You're gonna have to save more, and that comes a lower level of risk. So you're trading off, you know, a higher expected return with with higher volatility for lower expect to return. So what is a parent to do? Because this is themes like kind of a no win situation here. I'm either gonna have to contribute and save a lot, Maura, or take on a lot of risk. And that's where the 10 year rule can really come into effect. This is something I read about in the Globe and Mail and say publication in Canada. I include a link to that in the resources section below. But essentially, the 10 year rule states that if you have a 10 year orm or time horizon for the money you're investing, you can afford to take a lot of Ritz by investing in the stock market. Because if the market were to tank in the next few years, you would have a significant amount of time for your investments to rebound. So when your child is young, you can tilt that portfolio of savings for college education. Savings toward higher return investments like stocks is the child ages and gets closer to actually the age where they will attend college. You can search a re balance and take some of the money away from stocks and move it into MAWR conservative investments like bonds. They're going to be a little bit less volatile, so we'll take on more risk and have a higher return at the early part of the savings plan and then is the approach called age. Age were taking the risk away and trying to lock in those gains and taking away some of volatility and risk out of the portfolio. So you kind of smooth it out. You try to get as much returns as you can while minimizing volatility. 7. Step 5: Bring child in on the plan: And then the final thing that you're gonna want to do is actually bring your child in on the plan for what you're saving in their education. Once they get a little bit older, you know, let them know how much you're saving. What type final savings. Gold is what you're gonna cover on their behalf if you're going to cover the whole thing or only a portion of it, and especially if you're only gonna cover a portion of that, they need to be prepared, do their start saving themselves or to be ready to take on student loan debt. Here is what my wife and I plan on doing is our we're saving for our son's education. He's five months old at the time. I'm recording this. We started out his college savings fund two weeks after he was born, and we're maxing that out every single year so that there's tons of money. Um, hopefully 1/3 plus by the time he gets to college age, when he approaches high school age and it's time, you know, he's old enough to really be brought in on what's going on. We're going to sit him down and let him know how much is in his college fund, how much we're putting away each month, how much college will probably cost. And we're also going to try to bring him in, incentivize him to be a part of the savings plan. So I am by trade and an economist. So I had no a thing or two about the power of incentives. So we're going to try the best we can to provide our son incentives to help with the savings plan. So there are a lot of things that your child can do to make life a little easier on you. Is is they approach college age. In high school, they can begin taking get A P credits and take AP exams, which can actually give them university credits. And the more university credits your child can obtain before they attend college or university, the cheaper will be to get their truck, their college education. They can also apply for his many bursaries grants. Scholarships out there, you might be shocked off all the scholarship and grant adversary money that's out there available that goes unclaimed every year. And so what my wife and I are gonna do is we're gonna provide their son a little bit of incentive. We're going to tell him that when his when he's graduated from college, whatever is left in his college fund, if there's a surplus he can have that money will use that money to help him with a down payment on a house or to start a business or begin investing. So whatever he could do to help grow the college fund and minimize the cost of going to college will actually benefit him. So what we're going to say to him once the A purchase high school and it gets a summer job ? What we're going to say is, for every dollar that you save on your own towards your college education will match an additional dollar beyond what we're already saving for him. So if he saves 500 bucks over one summer, we'll put in an extra $500 as well. And that's an extra $1000. Whatever he saves will match it. And if there's surplus at the end of his four year degree, he can have that money to help start building wealth and get a leg up. Same thing goes for reducing the cost of college. The more a P credits he takes and reduces the cost of a four year degree, he can get his degree. And again, if there's there's a surplus leftover, he can benefit from that as well. So we plan on empowering him and incentivizing him to help make this college experiences affordable is possible. So giving him that incentive that hey, there might be some extra money here at the end. If I help out and I do great than that, it's just gonna make it all the more. Empower him to help us along the way. 8. Wrap up and review : All right, everybody. So I really hope you enjoyed this class today. We covered the five steps on Saving for your child's education. Step one. Before you do anything, make sure you're in a financial position that you can worry about someone else's financial issues rather than your own. And to do that, you really want to have your emergency fund in place, have a all your consumer debt paid off and have a retirement plan. Going second is to do your research and figure out how much it's gonna cost by the time your child actually attends college. The third step is going to be than Teoh. Account for inflation on and figure out how much of that total cost you're going to cover. It is 100% or 50% whatever it might be forthright, you're gonna build your savings plan, and we've provided you the calculator to fill in the variables to determine how much you need to start saving each month and then the fifth step. Bring your child and on the plan when they're mature enough to understand what you're doing for them and find ways to incentivize and empower them to help you help them pay for college. So that is it. Guys, I hope you enjoy this class. You found it valuable. I know you can do this. It seems daunting. But you have what it takes to help your child get a leg up in life. So thank you so much for it. For attending. And we will talk to you guys again next time.